Unit-linked insurance plans (ULIPs)

Unit-linked insurance plans (ULIPs) 
Unit-linked policies carry a higher risk than with-profit policies and contain fewer guarantees. However, they are much more flexible. Unit-linked policies are suited to people prepared to undertake some investment risk to obtain the benefits of flexibility. Returns are subject to movements in the capital markets where investments such as equities (shares) are traded (shares will be discussed fully in chapter 6). 

Key points 

• Unit-linked insurance plans (ULIPs) offer the benefits of both life insurance and returns on investment. 
• In traditional plans the insurance company takes a decision on the investments to be made on behalf of the insured. However, in a ULIP the insured has a variety of funds to choose from like equity funds, debt funds, balanced funds and money market funds etc. for their investments. 
• ULIPs give the insured the option to participate in the growth of the capital markets. 
• On the death of the insured the sum insured or the market value of the investment (fund value), whichever is higher, is paid. 
• On maturity of the plan the fund value is payable. 
• Settlement option: instead of taking a lump sum amount, some plans provide the policyholder with the option to receive the maturity benefit amount as a structured payout (periodic instalments) over a period of time (say, 5 years or any time up to 5 years) after maturity. This is known as the settlement option. If the policyholder wishes to take the settlement option they need to inform the insurance company well in advance.

Anand Khemka
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