10 Most Frequently Asked Questions about ULIP

What does ULIP stand for and what does it mean?

ULIP stands for Unit Linked Insurance Plan. It gives your life cover and also helps you save money for the future. When you prefer to buy a ULIP, your premium  is divided into two parts. One part is used to give life insurance. The other part is used in market-linked funds like equity , debt, hybrid funds depending on your choice. You can choose funds based on your risk appetite . If you want high returns and are okay with some risk, you can choose equity. If you want safety, you can go for debt funds.

What does the term 'unit' mean?

Units are like small shares of the bigger fund. For example, think of it like breaking a big chocolate bar into smaller pieces. These smaller parts are called units. The value of these units changes every day based on the market. When the market goes up, the unit value also goes up. If the market goes down, the value goes down too. So, your total fund value depends on how many units you have and what each unit is worth.

How is NAV defined?

NAV means Net Asset Value. This tells you the value of each unit in your ULIP. It changes every day because it depends on the market. If the underlying assets in a fund do   well, the NAV goes up. If the market is down, the NAV may go down too. For example, if the NAV is ₹20 and you have 100 units, your total fund value is ₹2,000. This value keeps changing, so you can track your ULIP's performance by checking the NAV regularly.

What does a ULIP provide as a death benefit?

In a ULIP, the death benefit typically includes the higher of the sum assured or the fund value at the time of the death of the life assured. The exact benefit depends on the plan structure chosen at purchase—so it’s always smart to check the specific policy document for clarity.

What do you receive as the maturity benefit in a ULIP?

When your ULIP policy ends, you get a maturity benefit. This is the total fund value at the time of maturity . It is calculated by multiplying the number of units you have by the NAV on the maturity date. This is the amount you get if you stay with the ULIP till the end of its term.

Is partial withdrawal permitted under a ULIP?

Yes, ULIPs allow partial withdrawals, but only after a lock-in period of five years. After five years, you can take out a  part of your fund value , subject to policy terms and conditions.

What is meant by a fund switch?

A ULIP lets you change your investment from one fund to another. This is called a fund switch. If you first put your money in equity funds (which are high risk), but later want safety, you can move your money to debt funds (which are low risk). This helps you manage your savings better as your needs and risk appetite change. Most insurers allow some free fund switches every year. If you cross that limit, they may charge a small fee. Some companies even offer unlimited free switches.

What is meant by redirecting premiums in a policy?

Premium redirection means you can change where your future premium payments go. Suppose earlier, you were putting all your money in equity funds. But now you want to put it in debt funds. You can request premium redirection. Your existing investments remain unchanged, and only the allocation of upcoming premiums is altered. This feature gives you flexibility to adjust your investment strategy over time according to your changing risk appetite or market conditions.

What are there tax benefits in ULIP?

Yes, ULIP comes with tax benefits. Here are the two main ones:

1. Under Section 80C (only under the old tax regime)of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh every year on the premiums you pay under the old tax regime.
2. Under Section 10(10D), the amount received on maturity or death is tax-free if conditions are met.

Can a policy be surrendered prior to completing the lock-in period?

Yes, you can surrender your ULIP before the 5-year lock-in period. But there are some conditions:

• A surrender charge may apply.
• You won’t get the money right away. The amount will be kept in something called the Discontinued Policy Fund.
• The money will be given to you after the 5-year period ends.

So, while surrender is possible, it’s better to continue till at least the lock-in period is over.