By purchasing a UL policy, the client insures their life and health. But unlike a regular accident insurance agreement, after the contract expires, the policy owner has the opportunity to return all the funds invested. During the validity of the policy, the insurance company invests part of the client’s funds in various assets. If the investment strategy turns out to be profitable, the client will receive income; if not, the initially invested amount will be returned.
The funds invested by the policy owner are divided into two parts - guarantee and investment. Proportions are determined in accordance with the agreement.
The guarantee (protective) part of funds is invested by insurance company in conservative investment products with fixed income (for instance, deposits and bonds). This allows cover possible losses from investments and preserve client’s funds.
The investment (income) part is invested by the insurer in high-risk products (stocks, futures) in order to obtain more significant income. The policyholder receives a certain share of this income (participation rate) specified in the contract.
The UL return upon expiration of the policy may vary: it may be higher than the average rate on bank deposits, but it may also be significantly lower, and sometimes absent altogether. Insurance companies offer UL policies with capital protection to their clients. The owners of such policies (or beneficiaries) after the completion of the contract (or upon the occurrence of an insured event) receive all the money invested. However, there is no guaranteed return under the UL agreement by default.
It should be noted that under the UL agreement, a guaranteed return can be specified through the insurance amount for survival (more than 100% of premium) or through indicating a fixed payment amount in the investment declaration. In this case, the capital security can be less than 100%, equal to 100% or more than 100%.
Source: https://www.indmoney.com/articles/is-ulip-a-good-investment
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