What is an example of a ULIP?

A Unit Linked Insurance Plan (ULIP) is a financial product that combines life insurance with investment. Following is an example of a ULIP:

Let us assume you purchase a ULIP policy with an annual premium of ₹50,000 for a 20-year term. A portion of this premium, typically around 3-5%, goes towards providing life insurance coverage. The remaining amount is invested in various funds of your choice, such as equity, debt, or balanced funds.

For instance, you might choose to invest 70% in equity funds and 30% in debt funds. The insurance company will allocate your investment accordingly:
• ₹35,000 (70%) in equity funds
• ₹15,000 (30%) in debt funds

As the market value of these funds' changes, so does the value of your investment. If the equity fund performs well and grows by 12% in a year, your ₹35,000 investment would become ₹39,200. Similarly, if the debt fund grows by 6%, your ₹15,000 would become ₹15,900.

Throughout the policy term, you can switch between funds, make partial withdrawals, or add top-up premiums. At maturity, you receive the current value of your investment. In case of your unfortunate death during the policy term, your nominees receive either the sum assured or the fund value, whichever is higher.

This example illustrates how a ULIP provides both insurance protection and potential for investment growth, allowing you to customise your investment strategy based on your risk appetite and financial goals.