Unit Linked Policy

Unit linked plans, also known as ULIP’s emerged as one of the most popular and significant products, displacing traditional plans in many markets. Unit linked policies provide the means for directly and immediately cashing on the benefits of a life insurer’s investment performance. The units are usually those of a specified authorised unit trust or a segregated (internal) fund managed by the company. Units may be purchased by payment of a single premium or via regular premium payments.

An endearing feature of unit linked policies is its facility of choosing between different kinds of funds, which the unit holder can exercise. Each fund has a different portfolio mix of assets. The investor thus gets to choose between a broad option of debt, balanced and equity funds. A debt fund implies investment of most of one’s premiums in debt securities like gilts and bonds. An equity fund would imply that units are predominantly in equity form.

The life insurer, while being expected to manage an efficient portfolio, does not give any guarantee about unit values. It is thus relieved here of the greater part of the investment risk. The latter is borne by the unit holder. The life insurer may however bear the mortality and expense risk.