Understanding ULIP, how ULIP works, and the benefits of ULIP

The ultimate goal of any investment, big or small, is to increase the money one invests. This is the underlying premise of investment, and the main goal is to augment your wealth.

Money has always been the crucial factor between disappointment and achieving one's dreams. But it has become doubly important today because its value has risen. Living costs and inflation take an upward jump constantly, and despite working hard, you are unable to make many of your dreams come true. It seems like your earnings slip through your grasp in the blink of an eye.

In today's times, one cannot depend merely on one's income to pay all expenses and still have some savings left over. It has become necessary to invest in some kind of instrument that helps one gain on the initial fund over time.

The answer lies in investing in ULIPs.

What is ULIP?

Most people take insurance to protect themselves and their families against financial uncertainty in the future. However, it is important to take the right kind of insurance instrument. One such is the ULIP-Unit Linked Insurance Plan. It offers the protection of insurance while also providing capital appreciation over a period of time.

How much term insurance do I need?

The sum assured of the term plan is quite high, but it must be high enough to finance your family's future requirements comfortably. How much money is needed for the future? Break expenses down to: Monthly expenses, house maintenance costs, children's education costs, children's wedding, unpaid debts and emergency expenses. Multiply this number by 10. Now add the future inflation ratio to it. The figure you now arrive at is the amount of term insuranceyour family needs in your absence.

How a ULIP works

An ULIP is an excellent and viable solution for those who want protection and investment gains. The ULIP works like this:

• The policy holder pays the premium amount.


• The premium amount is split into two parts. One part pays the premium, while the other part is invested in the securities or debt markets. This investment is handled by the insurance provider.Hence, the potential for gains on the ULIP stem from the market-linked returns accrued on the investment. One invests in the ULIP to gain valuable exposure to the equity, debt or money markets. It has a lock-in period of three years, after which the policy holder may continue investing in it or partially or fully withdraw the ULIP. ULIPs are quite liquid and offer the benefit of tax deductions on returns.

But do note that this is not a short term investment, and it is to be monitored for a long period of time to get gains.

Advantages of ULIP

At an estimate, one may earn as much 10 times the amount invested in the ULIP when measured over a long term. ULIPs help one realise their financial goals in a systematic manner.

The most important benefit of an ULIP is that the policy holder may choose the shares he wishes to invest his money in if he is not satisfied with the allotted units of the shares. This way, the policy holder may directly influence the growth and outcome of the ULIP.

The types of ULIP plans Another ULIP benefit is that you can select the type of ULIP you want based on your long term goals. There are four types of ULIPs:

• Wealth creation or growth


• Children's future education


• Health plan


• Retirement plan

You can invest in any of these as per your requirement and risk appetite.