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A unit linked insurance plan is a twin benefit plan of insurance and investment.
You have to pay a premium in order to avail a unit linked insurance policy. The premium you pay is invested in the equity markets (Share markets) and you get units based on the proportions you invest. More you invest higher would be the number of units allocated to you.
The value of the units fluctuates in line with the stock markets. Higher the stock markets greater is the value of your units and if the stock market tanks the value of your units also decreases.
These are charged from the premium paid for the policy. The insurance agents get commissions from the premiums you pay as the premium allocation charges.These can go as high as 20% of your premium.
These are paid out of your premiums. This is used for the insurance benefits .To pay your death benefits or claims.
A manager is appointed to run the Ulip by the AMC or the asset management firm. This manager invests your premium in stocks/shares so that you can get an increase in value on your units. He charges a fee for these services called fund managers fees.
These fees are charged out of the premiums you pay and are used for the day to day administration and other costs of the fund.
NAV = Assets of the fund – Liabilities of the fund
Number of outstanding subscribers
Assets of the fund: The investments of the fund mainly the premiums you and other people pay for entry into the scheme.
Liabilities of the fund: The redemptions you and other people redeem or quit from the fund.
Number of the outstanding subscribers means all the investors who are invested in the Ulip.
The lock in period of the Ulip is for a period of 3 years. You cannot exit/surrender the policy and have to pay the premiums for at least 3 years. If you stop paying your premiums after the first year then you do not get back any amount from the policy.
There are two types of Ulips. Type 1 and Type 2 Ulips:
In type 1 Ulips you will get either the sum assured or the fund value (Value of the units you possess) whichever is higher if you die before the maturity of the policy.
In type 2 Ulips you will get both ( Sum assured as well as the fund value) if you die before the maturity of the policy. You have to pay a higher premium for the type 2 Ulips.
The premiums you pay are tax deductible as per Section 80 C of the income tax act. The maturity amount (The amount you get on the maturity of the policy) is tax free under Section 10 10(d) of the income tax act.