If you are in the market for an investment product that offers both risk protection and the possibility of high returns, unit-linked products might just be what you need.

Unit-linked products are investment products that come with both insurance and investment features, offering you the opportunity to invest in a range of asset classes while securing your financial future through insurance coverage. In this article, we will explore everything you need to know about unit-linked products, including their advantages, their drawbacks, and how they work.

What are unit-linked products?

Unit-linked products are investment products that offer policyholders the ability to invest in different assets including equities, debt, and even real estate while providing life insurance coverage.

Your investment is held in units, with the value of each unit being tied to the performance of the asset class it represents. As the value of your investments increases or decreases, the value of the units is adjusted accordingly.

Your policy’s value is determined by multiplying the number of units you hold by the unit’s value at the time of calculation, taking into account any additional benefits included in your policy.

How do unit-linked products work?

The way unit-linked products work is relatively straightforward. When you purchase a unit-linked product, you contribute a certain amount of money as a premium on a regular basis or as a lump sum.

The insurance company managing the product then invests the money in various asset classes such as equities, bonds, or real estate based on your goals and risk profile. Your funds are pooled together with those of other investors, and each investor is allocated units based on the amount of money they contribute.

The number of units you hold depends on the amount of your investment, and the value of your investment is linked to the value of these units. The value of the units fluctuates as the underlying assets’ value changes, so the value of your policy changes too.

As an investor, you have the flexibility to choose where your funds are invested based on your risk tolerance, financial goals, and investment preferences.

The insurance company selects various pre-defined portfolios that are managed by investment professionals and align with specific investment goals and risk levels.

The advantages of unit-linked products

Flexibility:.

Unit-linked products offer investors the ability to choose their preferred asset class, allowing them to tailor their investments to meet their financial goals and risk profile.

This way, you can choose to invest in a range of assets such as equities, bonds or real estate with the aim of receiving a higher return compared to traditional insurance policies.

Inflationary protection:.

Unit-linked policies generally offer higher returns than traditional policies, which adds an element of inflationary protection.

The returns on unit-linked policies are linked to the market, which has historically outperformed inflation, providing a shield against the diminishing value of money over time.

Life insurance coverage:.

Unit-linked policies offer an element of life insurance coverage in addition to the investment element.

This ensures that, in the event of untimely death, the beneficiaries receive a lump sum payout that could help them meet their immediate financial obligations.

Transparency:.

Unit-linked policies offer transparency by disclosing the details of the underlying assets in which the funds are invested. This enables investors to track their investments and stay informed of the market developments.

The drawbacks of unit-linked products

Risk:.

Unit-linked products are associated with a certain degree of investment risk.

Because your investment is tied to the performance of various assets such as equities and bonds, the value of your policy can fluctuate based on market movements and volatility. Additionally, because of the total protection nature of insurance policies, the fees associated with unit-linked products can be relatively higher compared to equivalent mutual funds.

No guarantees:.

Unlike traditional insurance policies, unit-linked policies offer no guarantee on the returns or the end-value of the policy.

The value of your policy is subject to market movements and can fluctuate based on outside forces such as economic conditions and political risks.

Is unit-linked insurance for you?

Before investing in a unit-linked policy, it is crucial that you understand the risks involved and that the policy aligns with your financial goals and risk profile.

If you are willing to take on market risks and enjoy the benefits of higher investment returns while receiving the protection of life insurance, unit-linked products may be the ideal investment option for you.

Conclusion

Unit-linked policies are a popular investment option that provides investors with the flexibility to invest in a range of asset classes while securing their financial future through life insurance coverage.

However, before buying a unit-linked policy, it is essential to weigh the advantages and disadvantages to ensure that it aligns with your financial goals and risk tolerance.