How does a Unit Linked Insurance Plan exactly work?

Unit Linked Insurance Plans (ULIPs) are aggressively marketed by Insurance companies as investment plans with a life cover and benefits like flexibility, market linked returns and transparency. Thanks to it, most of us are quite likely to have invested in one at some point in time.

Here is how your ULIP actually works and how and where does your money get invested from the date of payment of premium till maturity.

  1. Choose the premium amount, the amount of insurance you need (subject to a minimum and maximum amount as per IRDA guidelines).
  2. Decide the policy term and the portfolio strategy (choose from the available combinations of debt/equity) for investment.
  3. The premium amount less the charges is invested in to the fund of your choice.
  4. In case of the unfortunate death of the insured during the policy term, the insurance amount plus the accumulated fund value is paid to the nominee.
  5. If the insured survives the policy term, the Fund Value is paid on maturity.

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