ULIP is a product that requires policyholders to pay regular premiums, some of which are used to provide insurance coverage, and the rest is pooled with assets of other policyholders and then invested in equity and debt instruments just like in mutual funds.
A unit-linked insurance plan can be used to pay a variety of benefits, including life insurance, retirement income, and education costs. In most cases, an investor opens a ULIP to offer these types of clauses to their beneficiaries. With life insurance, the ULIP beneficiary will receive benefits upon the death of the owner.
The investment options of a unit insurance plan are structured in the same way as mutual funds in the sense that they combine investments with those of other investors. Thus, ULIP asset management is aimed at achieving a specific investment goal. Investors can buy shares as part of a single strategy or diversify their investments through multiple ULIPs linked to the market.
Policyholders must pay an initial one-time payment on their first ULIP purchase, followed by an annual, semi-annual, or monthly premium payment. Although the obligation to pay premiums varies from product to product, in all cases they are proportionally invested in accordance with the assigned investment mandate. ULIPs are unique being flexible for investors who can adjust their fund preferences throughout the investment period. For example, depending on their investment needs, they can move between equity funds, bond funds, and diversified funds.
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