ULIPs and mutual funds are two popular yet distinct investment avenues, each coming with its unique set of benefits and drawbacks. Know which one is better for your individual needs and preferences.
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Life insurance plans can provide crucial financial assistance in case of the death of the policyholder before the end of the policy tenure. This can help the insured individual be confident regarding their preparation for unfortunate contingencies so that their family stays financially protected.
When it comes to life insurance plans, different types of policies are available in the UAE. ULIPs, one such type of life insurance, is a unique product in that it combines insurance with investment to ensure financial security as well as the growth of funds via investment in the financial markets.
Let’s take a closer look at what the ULIP plans are all about and why they can make a suitable investment option for an individual.
Unit Linked Insurance Plans, denoted as ULIPs, are investment-oriented life insurance plans. One of the fundamental ULIP plans benefits is that the policyholder can enjoy the twin benefits of insurance protection as well as market-linked returns.
The premium paid by the policyholder for the policy is allocated into market-linked funds that invest in financial market securities as well as the creation of life cover. Based on the returns of the underlying securities, the value of the invested premium can grow over time.
In case of the death of the policyholder during the policy tenure, their family receives the death benefits. On the other hand, if the policy matures, the fund value would be paid.
Here are some of the salient features of ULIP plans –
With a ULIP, an individual can opt for investment in different types of investment funds such as equity funds, debt funds, balanced funds, and more. Moreover, there are different types of ULIPs in the UAE tailored for specific purposes, with examples including child ULIPs, retirement ULIPs, and so on. One can choose any of these funds based on their risk profile and investment requirements.
With the facility of partial withdrawals under some ULIPs, individuals can withdraw a part of the fund value during the policy tenure if the requirement arises.
The option of surrendering the plan during the policy tenure is also available, although the terms for the same may vary.
ULIPs allow individuals to alter the investment funds if the market dynamics change or if there’s a change in their investment preference – this facility is called switching.
Predefined charges are deducted from the premium and the fund value to maintain and manage the ULIP.
One can choose from a wide range of add-ons or riders with the ULIP for enhanced protection
With different types of ULIP plans being available in the UAE, let’s have a look at the most prominent ones –
These are basic ULIPs that are designed to accumulate the premiums and generate maximum returns on these investments. These ULIPs are not goal-specific – one can invest in them for any financial goal as per their requirements.
These ULIPs are specifically designed to create a corpus for the child’s future in case of the parent’s absence. Many child ULIPs have a premium waiver benefit wherein the premium is waived off on the parent’s demise while the plan continues.
These ULIPs are intended to create a retirement corpus for the policyholder’s post-retirement life. Under these plans, one can pay premiums throughout the policy tenure and accumulate a market-linked retirement corpus.
ULIPs in the UAE can give multiple benefits, which makes investing in them an ideal choice. Here’s a look at the top ULIP plan benefits that a policyholder or their beneficiaries may receive –
As ULIPs offer a unique combination of insurance and investment in one plan, an individual can conveniently manage insurance and investment in one place without being required to manage different products for different goals.
As mentioned earlier, unit-linked plans are highly flexible and give the policyholder complete control over the coverage and investment. One can easily choose the amount that they want to invest, the policy tenure, the premium payment frequency and mode, the preferred investment funds, and more.
On top of all these ULIP plan benefits, the policyholder can also enjoy the flexibility of making partial withdrawals during the policy tenure and switching between funds.
Right from the premium to the charges deducted and the investment allocation to different securities, all such details are disclosed to the policyholder from the onset. The insured individual can easily find out how the charges are being deducted, the returns that they are earning, the applicable insurance coverage, and more. This knowledge can help individuals make informed decisions when reviewing their portfolios and investments Plans.
Since ULIPs facilitate investment in the market, they have the potential to generate attractive returns on the policyholder’s investments, especially if the option of equity ULIPs is chosen. Although the returns are not guaranteed considering their association with the market, one can nevertheless earn good returns over a long period.
As a policyholder, it is advisable to use ULIP plan calculators to estimate the returns that can be earned from the policy.
With different types of ULIPs available in the market, an individual can easily create an earmarked corpus as per their financial goals. One can choose goal-oriented ULIPs or even the basic ones to create an inflation-adjusted corpus.
The funds available under ULIPs are invested in a diversified basket of securities, which minimises the risk quotient of the plan. Moreover, the funds are professionally managed, which means that the investments would be tracked all the time and managed efficiently for the best returns and minimised risk.
Before investing in ULIP plans, here are a few things that must be kept in mind –
The returns under ULIPs are not guaranteed as they depend on market movements and carry investment risks.
Three main types of funds are offered by ULIPs – equity, debt, and balanced.
The policyholder must select the policy tenure in a way such that it aligns with their goals. This would ensure that they get the required funds when they have to fulfil the goal for which they bought the plan in the first place.
It is always advisable to select suitable riders to ensure complete protection against unforeseen emergencies. For instance, one can choose the accidental death and disability benefit rider to provide additional protection against accidental deaths and disabilities or the critical illness rider for financial assistance in critical illnesses.
Although mutual funds are similar to ULIPs as they help in generating investment returns, they don’t offer life insurance coverage that ULIPs do. With ULIPs, one can enjoy the double benefits of insurance and investment in one plan. ULIPs also ensure that the corpus is in-sync with the rising inflationary costs.
To estimate the corpus that can be accumulated, an applicant can use any of the ULIP plan calculators available online and estimate the expected returns. Moreover, with different types of ULIPs and investment funds available, these calculators can help individuals choose a plan that fits their requirements and creates a secured financial corpus for their goals.
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