What is a Unit Linked Insurance Plan (ULIP)

Unit Linked Insurance Plans (ULIPS) are hybrid products that mix life insurance and investments. Like most life insurance products in the market, these offer life cover along with investment. However, it is left to the policyholder to make the investment choice from the available fund options, thereby transferring the risk of investment to the policyholder. Funds can be equity-oriented, debt-oriented or a combination of both equity and debt. These policies may be more profitable than a traditional insurance policy, but also carry a higher risk. While it is good to understand what a ULIP means, it usually makes more sense to keep your insurance and investments separate. Capital Protection and Inflation Protection The sum assured in a life insurance policy is guaranteed as per the terms of the policy as long as the premiums are paid and the policy is in force. Life insurance is not inflation protected because insurance is a fixed-cover fixed-tenure product, wherein the sum assured is fixed. However, the equity fund option has all the potential to beat inflation and create wealth over the long

This article was originally published on October 05, 2021.