ULIP Returns in 40 Years

How does a 40-year ULIP work? 

Here's how this ULIP policy works:  

• The premium is divided into two parts: one part is used to provide life cover, and the other for investment in funds. 
• The part of the amount you pay is allocated to different fund options like equity, debt, or hybrid.
• If market conditions change or your goals shift, you have the option to move your investments between available funds.
• A portion ensures life cover, while the rest is invested to help your money grow over time.
• If the policyholder passes away during the term, the nominee receives either the sum assured or the fund value, whichever is higher.
• Completing the full 40-year term allows you to access the accumulated corpus, which can support major long-term needs.

Here’s an example to understand 40-year ULIP policy:

Akash buys a 40-year ULIP policy at the age of 30 years. He opts to pay an annual premium. The insurer will utilise a small portion of premium to buy life insurance cover and invest the remaining corpus in equity and debt funds, depending upon Akash’s risk profile.

Akash can review market conditions and shift his investments from equity to hybrid funds in order to balance risk. If he were to pass away during the policy term, his nominee would receive the higher of the sum assured or the fund value, ensuring financial support when it’s needed most. If Akash completes the entire 40-year term, at maturity, ULIP returns in the last 40 years lead to an accumulated fund value that can be withdrawn to meet long-term goals such as retirement planning or children's education.

Why choose a 40-year ULIP policy?  

Here are some of the prominent reasons to choose a ULIP policy with a 40-year term: 

• A 40-year ULIP ensures long-term financial protection for the policyholder and their family. 
• A long investment horizon of four decades provides greater time for growing the policyholder's money and compounding. A 40-year term can be more capable of significant wealth creation. 
• The investment mix can be tailored to suit the policyholder’s comfort with risk and the financial goals they want to achieve over time.
• Like other ULIPs, a 40-year plan also provides tax2 advantages as per the current tax rules.
• A policyholder with an investment horizon of 40 years can build a considerable corpus.
• Since the premium is invested in market-linked funds5, the policyholder would have the potential to enjoy the growth from equity and other financial markets.
• ULIPs provide partial withdrawals after the minimum lock-in period, usually five years.
• Apart from investment growth, a 40-year ULIP also provides life insurance coverage throughout the policy term.  
• A 40-year ULIP assists in a disciplined and long-term financial strategy. 

Factors that affect ULIP performance over 40 years 

The following factors are the key determinants of the overall performance of ULIP:  

• ULIP returns depend on market performance. Funds may grow in bull markets but may decline in bear markets or economic downturns. 
• Economic variables such as GDP growth, inflation, interest rates, and global events influence the performance of ULIP. 
• The NAV keeps fluctuating and is updated daily. Hence, the final return depends on the NAV at the time of entry and time of withdrawal or maturity.
• The selection of an appropriate fund is important. Equity funds offer high growth with volatility; debt funds are stable with moderate returns, while balanced funds mix both. 
• The expertise of the fund manager affects the returns through decisions on asset allocation and market timing.
• Charges such as premium allocation, fund management, policy administration, and mortality reduce the invested amount.
• A 40-year investment horizon gives your money far more time to compound, helping the overall corpus grow significantly compared with shorter-term options.
• Making use of fund-switching and periodic rebalancing can improve returns, as it lets you shift between equity and debt depending on market movements and how much risk you’re comfortable taking.
• Partial withdrawals are allowed after the 5-year lock-in, but taking money out early reduces the invested amount and can ultimately lower the maturity value you receive.

Benefits of a ULIP for 40 years

The main advantages of investing in ULIPs for 40 years are as follows:   

• Being invested for 40 years allows compounding to have a substantial impact, where your returns start earning returns significantly.
• ULIPs provide life cover so that your family gets the death benefit to meet expenses, debts, and maintain their lifestyle.
• You can select and modify your premium amounts to suit your budget or changing financial goals without losing out on any benefits.
• Premiums are invested in equity, debt, or balanced funds. Returns depend on market performance and offer higher long-term growth potential.
• ULIPs invest the corpus in different funds, the unique feature of which is that the investments can be switched from one fund type to another.
• Premiums are deductible under Section 80C up to ₹1,50,000. Maturity proceeds are exempt in the hands of the recipient under Section 10(10D).
• It allows withdrawal of some money to meet emergencies after a 5-year lock-in period without ending the policy.
• ULIPs combine both insurance and investment to help you reach long-term goals such as retirement, wealth creation, or even legacy planning.
• At policy maturity, you get the accumulated corpus along with bonuses that could meet major financial goals.
• Investments are diversified, and rebalancing is done regularly to minimise market volatility and facilitate steady growth.