How ULIPs work?
To understand the working of these plans, here's an example:
Let's say you are 25 years old today. You would like to buy a term insurance cover of Rs 50 lakhs with the sum assured payable on your death. Now you also want to save money for your future, so you opt for a ULIP plan which has ten-year tenure.
Let us assume there is no bonus in the first year and it is 20 per cent for the ten years.
You pay a premium of Rs 1,000 per month for 10 years. Now let us calculate how much your life insurer would have paid you at the end of the term: Rs 5,00,000 to your nominee or beneficiary on your death - this is called the Sum Assured. In addition, over ten years, you would also have received an additional sum as returns from both units linked savings and protection plans which will be more than your premiums paid. So you see, a ULIP plan is a win-win situation for you!
In simple words, this is how it works: You pay money to the insurance company, and in return, they give you some units. As per the terms of your policy, the number of units depends on your age; sum assured and tenure of the investment plan. The value of these units changes from time to time, depending on the market conditions. You can redeem these units anytime or just a few months before your maturity period as per the agreement.
Unit linked plans is a great way to protect your family in the event of an unfortunate demise. One share of the premium goes towards ensuring that you have life cover. At the same time, another portion is invested into various types of fund options, which can be customised based on what investors want - whether they're looking for wealth creation or risk-taking behaviour!