What is ULIP?

A Unit Linked Insurance Plan or ULIP is a plan which offers life insurance and also invests your money in market-linked funds. A part of the premium provides life insurance. The rest is invested in market-linked funds such as equity, debt, or balanced funds. The Unit Linked Insurance Plan offers both protection and investment in one plan.

How does a ULIP work?

After understanding what is unit linked insurance plan (ULIP), let’s see how they work. When you pay the premium, the insurer divides it into two parts. One part gives life cover to your family. The other part goes into investment funds based on your choice. The value of your investment depends on the market performance. This value is shown through the Net Asset Value (NAV). If you live until the end of the policy term, you receive the maturity value. If you pass away during the term, your nominee receives the death benefit.

How is the ULIP plan structured?

A ULIP plan is structured into two components: insurance and investment.
 

• The insurance part provides a life cover.

• The investment part helps you grow your money.

• You can choose how often you want to pay premiums.

• ULIPs have a 5-year lock-in period. After this period, you can make partial withdrawals.

• You also get features like fund switching and premium redirection.

Why invest in ULIPs?

ULIPs provide you with the dual advantage of life insurance protection and market-linked returns. This enables the investor to save and invest systematically for long-term goals, which may be children's education or retirement building or general wealth creation. ULIPs also provide you with the option to switch between equity, debt, and balanced funds based on changing market conditions and your risk preference. The switching feature enables you to manage your investment risk better and optimise your returns over time, making ULIP a suitable option for long-term financial planning.

How to choose the best ULIP?

Upon understanding the ULIP plan meaning, here is how you can choose the best ULIP:
 

• Check your financial goals before choosing a ULIP.

• Select funds as per your risk tolerance.

• Compare charges like fund management and administration fees.

• Review the past performance of the funds.

• Look for features like fund switching and partial withdrawals.

• Check available tax* benefits under prevailing tax rules.

Features of ULIP plans

The key features of ULIP plans are:
 

• Life insurance with investment: This type of plan provides the insured with life insurance coverage along with investing a portion of the premium amount in market-related funds.

• Multiple fund options: Depending upon the horizon and risk capacity of the individual, equity funds, debt funds, as well as balanced funds are available.

• Fund switching facility: ULIPs enable you to switch between funds while the policy is in force, based on market changes and risk/return possibilities.

• Partial withdrawal facility: After the expiry of the lock-in period, which is five years, partial withdrawal facilities are provided to the policyholder.

• Premium redirection facility: You can redirect future premiums to different funds if your investment needs change.

• Flexible premium payment terms: ULIPs allow you to pay premiums monthly, quarterly, half-yearly, or yearly.

• Tax benefits: Premiums paid and maturity benefits may be eligible for tax* benefits, as per the tax laws.

• Market-linked Returns: Returns depend on the performance of the chosen funds and are reflected through the Net Asset Value (NAV).

Benefits of investing in ULIPs

Investing in ULIP offers the following benefits:
 

• Life protection: Provides life cover to financially secure your family.

• Wealth growth: Assists individuals in creating a fund for their future plans.

• Flexibility: It facilitates the transfer of investments between funds based on the market conditions.

• Higher return potential: Market linked investments offer greater potential for returns.

• Goal-based savings account: This plan is suitable for savings for education, marriage, and retirement, among others

• Tax* benefits: Offers tax* benefits on premium payments as well as maturity benefits under the taxation regulations.

• Liquidity: It provides flexibility regarding withdrawal of funds, which is possible after the mandatory lock-in period.