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

Ms. Iyer holds a unit linked insurance plan (ULIP) bought five years ago. Which statement about the ULIP structure is correct?

In a ULIP the policyholder picks the fund and bears the investment risk, and the fund value depends on the NAV of the units held. Returns are not guaranteed, investment is not restricted to government securities, and fund switches are allowed.

  1. AThe investment risk is borne by the insurer and a minimum return is always guaranteed
  2. BThe policyholder chooses the fund option, bears the investment risk, and the NAV of the fund determines the fund valueCorrect
  3. CPremium is invested only in government securities as per regulation
  4. DSwitching between funds is not permitted during the policy term

Explanation

In a ULIP the policyholder selects among equity, debt or balanced funds and bears the market risk, with the fund value based on NAV. Returns are not guaranteed in general, funds are not limited to government securities, and switching is a standard feature.

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