What is the ULIP plan and how does it work?
The insurer collects money from all policyholders and invests it in funds that they select. The overall corpus is divided into 'units' with a certain face value once the money has been invested. Following that, each policyholder is assigned ‘Units' in proportion to the amount invested. The Net Asset Value (NAV) is the value of each unit at any given time (NAV). The effect of changes in the value of the underlying assets is represented in the ULIP NAV.
If you partially withdraw from the corpus (according to the policy's terms and conditions), the equivalent number of units is sold. In the same way, some policy fees are deducted in the form of units subject to terms and conditions specified.
What does premium redirection in ULIP mean?
- Premium redirection in ULIP refers to how your upcoming premium will be allocated in the proportion that might have been selected by you into the respective funds
- As a result, one of the most significant characteristics of your assets is flexibility. Their features, such as fund switching and premium redirection, make it easier to migrate between different type of funds and manage your returns.
How to redirect your premium in ULIP?
- ULIP policyholders have the option of switching their investments from one fund to another within the same plan. Units can be transferred entirely or partially between the three fund types: equity, debt, and a combination of both. The former is referred to as a fund switching.
- A fund switching is when you switch the funds where your existing units are housed. For example, in the past, you allocated 40% of your investments to debt and 60% to equity. You've now requested that 80 percent of your funds be converted to equity. As a result, your fund manager will convert 20% of your debt investments to equity. After the transfer, you'll have 80 percent of your investments in equity and 20 percent in debt funds.
- The term "premium redirection in ULIP" refers to the process of shifting the funds in which future premiums are invested to purchase units. Let's look at the previous example again. You predict interest rates to fall a few months after authorising a fund move. So, you want to take advantage of the better yields currently available in the debt market. As a result, you direct the fund to apply 60 percent of your premiums to debt. As a result, 60 percent of your policy's future premiums will be invested in debt and 40 percent in equity. Meanwhile, your existing units will continue to remain in the funds where you have allocated before.
