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A Unit-Linked Insurance Plan (ULIP) is a type of life insurance product that combines both insurance coverage and investment options. When you invest in a ULIP, a part of your premium goes towards providing life insurance coverage, and the remaining portion is invested in a fund of your choice, such as equity, debt, or a combination of both.
A ULIP can be used for various purposes, such as providing life insurance, and paying for education. However, it’s essential to carefully understand the terms, charges, and risks associated with ULIPs before investing .That said, here is how ULIP works:
Premium Payment: You pay regular premiums or a lump sum amount. In ULIP, a fixed percentage of your premiums are deducted as charges towards allocating the remainder of your premium towards the equity, or debt of your choice. ULIPs may have various charges like premium allocation charges, fund management charges, policy administration charges, etc.
Insurance Coverage and Investment: A portion of the premium is used to provide life insurance coverage. ULIP is a form of life insurance life insurance product, but it also offers the option of investment in funds which based on policy holder’s financial goals.
Units: Every investment is represented in units, and the value of these units is linked to the performance of the chosen funds.
NAV (Net Asset Value): The value of units fluctuates based on the NAV, which is the market value of the fund’s assets minus liabilities. NAV is calculated periodically.
Switching: ULIPs often allow you to switch between different funds based on market conditions or changes in your financial goals.
Maturity or Death Benefit: At the end of the policy term or in case of the policyholder’s demise, the insurance company pays out the fund value or the sum assured, whichever is higher.
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