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ULIPs: A fantastic combo of insurance & investment

Dec 05, 2017 | 3 years ago | Read Time: 2 minutes | By iKnowledge Team

Want your insurance plan to work extra hard for you? Looking for a package deal that combines life coverage and investment? A unit-linked insurance plan (ULIP) might be just what you need.

ULIP meaning

A ULIP is a market-linked product that ensures both protection and investment. If you have wealth creation on your mind, this is a great option.

The premium you pay towards a ULIP does double the work. The insurer diverts a part of it towards investments. The investments could be in mutual funds, equity, stocks, bonds, debt funds, and so on. The other part of the premium goes towards your life cover.

ULIP investment guide

ULIPs are suitable for many kinds of customers. You can choose a ULIP if you are willing to monitor your investments regularly. It also works if you prefer a more hands-off approach.

However, you need to assess your risk appetite. And you must be ready to invest for the long-term.

Once you choose the ULIP you want, submit your application. Keep in mind that the insurer will check your financial statements. It will assess whether you are capable of paying the insurance premium.

ULIP benefits

Tax benefits under Section 80C: Any premium you pay gets you a tax benefit. You can deduct premium of up to Rs 1.5 lakh from your taxable income.

Insurance coverage: A part of the premium goes towards the life insurance component. The family receives the sum assured and the fund value in case of death. The policyholder can also withdraw the fund value upon maturity of the policy. This is an option if the policyholder outlives the maturity period.

Investment opportunity: ULIPs offers a range of investment options. But the policyholder must invest based on his/her investment goals and risk appetite.

Flexibility: A ULIP offers flexibility to the policyholder. You can shift between funds, if needed. You can also change the premium amount after a certain period. You can even make a partial withdrawal of the fund value.

Market-linked returns: If the markets are doing well, the policyholder-cum-investor stands to gain. Since a part of the premium is invested in market-linked funds, one could earn high returns.

Liquidity: The customers can make full or partial withdrawals after the lock-in period ends. For a partial withdrawal, you may have to pay a certain charge. For a full withdrawal before maturity, surrender charges may apply.

Keep in mind…

The charges

For the first 10 years, the annual charges on a ULIP are reasonable. You have the Insurance Regulatory and Development Authority of India (IRDAI) to thank for this. The annual charges for the first 10 years range between 2% and 2.25%. But the amount depends on the choice of policy and the investment instrument.

There are some other charges as well. These include charges for premium allocation, policy switching and policy surrender. There are also policy administration fees.

Your risk appetite

Investments under ULIPs are subject to market risk. So, you must consider your risk appetite before investing. Those with a high risk-taking capability can look at equity-related funds. Those with a low risk appetite can go in for debt-oriented funds.


The bottom-line is that ULIPs are a wonderful hybrid of insurance and investment. They allow you to insure your life and grow your wealth—both at the same time. It is a useful addition to your financial plan as they help combine investment and insurance. Now, that’s a combo you shouldn’t let go.



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