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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Life Insurance Products

Mr. Iyer holds a unit linked insurance plan (ULIP). Which statement about the ULIP's structure is correct?

In a ULIP the policyholder bears the investment risk, and the fund value equals the units held multiplied by the NAV of the chosen fund. The insurer does not guarantee the fund value, and charges including mortality charges are deducted from the fund.

  1. AThe policyholder bears the investment risk, and the fund value depends on the NAV of the chosen fundCorrect
  2. BThe insurer guarantees the fund value at maturity irrespective of market performance
  3. CSwitching between funds within the ULIP is not permitted during the term
  4. DMortality charges are not deducted from the fund in a ULIP

Explanation

In a ULIP, the policyholder bears investment risk and the fund value is units multiplied by NAV. Fund value is not guaranteed, switching between funds is usually allowed, and charges such as mortality charges are deducted by cancelling units.

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