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How ULIP Meets Your Insurance And Investment Needs

ULIP insurance investment needs

How ULIP Meets Your Insurance And Investment Needs


March 19, 2020

By : Bajaj Allianz Life

The insurance industry in India witnessed an upward growth trajectory during FY19, with the gross premiums written for both life and non-life sectors reaching Rs. 5,78,000 crores[1]. Insurance companies have started leveraging technology to offer customized solutions in an efficient and seamless manner to the policyholders, while providing competitive pricing.

Starting one’s investment journey isn’t easy, and more often than not, it can get daunting to understand different financial instruments, and what the best option is, based on one’s wealth creation goals and risk appetite. Furthermore, there are investment plans which focus purely on wealth creation, while some choose to invest through a life insurance policy, as it also provides insurance cover to the insured, thus securing their future, along with the futures of their spouse and children.

Thus, there are financial instruments that offer dual benefits of investment and insurance. Having a sound investment plan, with the added benefit of insurance coverage is beneficial, which can be achieved through investing in either Unit-Linked Investment Plans (ULIPs), or traditional insurance plans.

What Is ULIP Plan

Unit-Linked Investment Plan (ULIP) is an investment option, which offers the policyholder the dual benefit of investing in either equity funds or debt funds (or both), while providing life insurance coverage. Policyholders pay premiums, a part of which is channelized into the stock market, and the remaining amount is used to provide life insurance cover by the insurance companies.

Each Unit-Linked Investment Plan has a different set of funds, where the policyholder can choose to invest. Upon investment, the policyholder acquires a certain number of units of the funds in which they invest, which depend on the fund value being invested in. Considering the fact that ULIPs provide life insurance coverage along with investment option, they are one of the more sought after investment plans. It is imperative that the policyholder has a long-term goal, and needs to choose a plan that aligns with their vision or life goals they wish to achieve. ULIPs also allow investors to switch their portfolio between equity and debt, thus ensuring that the investor makes a sound financial decision.

The Insurance Regulatory and Development Authority of India (IRDAI) in 2010 announced a few changes, with one of them pertaining to ULIPs. Earlier, ULIP investment plans had a lock-in period of 3 years, which has since been increased to five years. It is also important to remember that ULIPs are helpful investment tools to achieve long-term financial goals, and investors can truly reap the benefits of ULIP plans if they hold for the entire policy term.

How ULIPs combine insurance and investment

1. ULIP Insurance Component

Opting for an insurance policy is important, and can be considered a necessity for breadwinners who want to secure their future, along with the futures of their family members. Life insurance cover offers long-term and short-term benefits to the policyholders; the insurance cover offers financial assistance to the family of the insured in case of the life insured’s passing away during the policy term. Life insurance policies also offer tax benefits to the insured, thus reducing a significant amount from the tax payable.

In ULIPs, a part of the premium is kept aside, and is used to provide insurance cover to the policyholder. ULIP insurance offers similar benefits but with greater flexibility. Depending on the policyholder’s preference, they can choose a plan that aligns with their vision. Furthermore, insurance providers generally offer at least ten times the annual premium paid as the sum assured for the life cover, but policyholders can also choose options that offer a higher sum assured.

2. ULIP Investment Component

ULIPs offer policyholders with the opportunity to invest in a portfolio of multiple funds, which will help minimize the risk and reduce the possibility of negative returns. ULIP investment provides individuals with the opportunity to create wealth, making ULIPs an attractive option for goal-based financial planning. Investors also have the option of paying premiums monthly in a regular premium ULIP plan, or can invest a lump sum amount for the entire policy term in a single premium ULIP plan.

It is also important to remember that the investor needs to pay premiums regularly, in order to keep the policy active. ULIP plans are long-term products, and hence, investors have to ensure that they are able to pay premiums until the maturity period, which could be between ten to fifteen years. However, ULIP investment may help, investors in securing their future, and use the maturity amount towards fulfilment of their life goals.

ULIP plans are also transparent and flexible in nature, and give the investors the freedom to choose where they wish to invest their corpus, depending on their risk appetite. For individuals with a high risk appetite that invest in equity funds, However, those with moderate or low risk appetite can also choose to invest in either debt ULIP funds or equity funds, to minimize the risk.

An easier way to assess one’s risk appetite would be through their age; those in their 20s or 30s have a long-term investment horizon, and are thus in a better position to take more risks. This makes investing in equity funds the better option. However, if one does not want to take a significant amount of risk or are risk-averse, they can invest their corpus in debt funds. Those who aren’t averse to taking moderate amounts of risk can build a balanced portfolio by investing in equity and debt funds.

One of the significant ULIP benefit includes the flexibility offered to the investors, where they can switch their portfolio between equity and debt. What that implies, is that after investing in equity and debt funds, if the investor wants to take a more low-risk approach, or if they foresee a market downturn, they can switch their corpus from equity to debt funds. If they change their approach, or in the event the market recovers, investors can once again take the money from debt funds and invest in equity funds. Those with limited knowledge can always take a subject matter experts’ advice or opt for a fund manager who would take care of their returns.

ULIP benefits:

Through ULIPs, investors can take advantage of various benefits, including:

1. Disciplined and regular savings:

By paying premiums on time, investors can start disciplined savings, and reap the benefits once the policy term ends. This helps in ensuring security and achieving long-term financial goals.

2. Financial assistance through insurance:

ULIPs offer dual benefits of investment and insurance. A part of the premium paid by the investor is used to provide insurance cover, which ensures financial assistance to the insured’s family, in the event of their death during the policy term. The protective life cover also ensures that the policyholder’s family is taken care of financially in their absence, and the death benefit can be used to pay for any of the life goals like child’s education, or clearing any loans. Furthermore, if the insured survives during the policy term, they also receive maturity benefits.

3. Goal-based financial planning:

ULIPs are ideal for goal-based investment planning, as investors can define their long-term goals, and choose a plan accordingly. Whether it is for buying a house after 10 years, or saving for their child’s education, or to amass corpus for life after retirement, through ULIPs, investors have an option to align their wealth creation with their goals.

4. Flexibility in investing:

ULIPs provide flexibility and transparency to investors, by allowing them to move their money between equity, and debt funds as per the market movement. Furthermore, through ULIPs, investors also have the option to invest future premium in a different fund of their choosing, along with the option to withdraw a part of their money after the five-year lock-in period in case of emergencies.

5. Tax-free withdrawals and ULIP tax benefits:

One of the major ULIP benefits comes in the form of tax savings on withdrawals. Investors can save a significant amount while withdrawing their corpus, which can happen in the following ways:

a. Death of the policyholder

b. At the time of maturity of the policy

c. Partial withdrawal

Death benefit paid to the nominee after the death of the policyholder is tax-exempt, as per Section 10(10D) of the Income Tax Act, 1961. The pay-out in such cases may be higher than the sum assured, based on the ULIP returns. Furthermore, in case the policyholder survives for the policy term, the pay-out received upon maturity of the ULIP plan is also tax-exempt, subject to satisfaction of conditions mentioned in as per Section 10(10D) of the Income Tax Act, 1961, and the pay-out will be equal to the assured benefit or the fund value, whichever is higher. Moreover, the amount investor takes out as partial withdrawal is exempt from tax, subject to satisfaction of conditions mentioned in Section 10(10D) of the Income Tax Act, 1961.

Also, under Section 80C of the Income Tax Act, 1961, the premium paid by the policyholder towards ULIP plan is allowed as a deduction, provided the premium amount is less than 10% of the sum assured, with the maximum amount allowed being Rs. 1.5 lakhs. The above mentioned deductions and exemptions are subject to the provisions stated in the Income Tax Act 1961.


ULIP plans offer dual benefits of investment and insurance to the policyholders, and help them in achieving their long-term financial goals, while providing life cover. While the investment component of ULIPs focuses on wealth creation and financial stability in the long run, the insurance component offers financial assistance to the nominee/ beneficiary, in the event of death of the policyholder.

Investing through ULIPs that provide for a comfortable and worry-free retirement for the policyholder could be a good option. ULIP plans provides for market linked returns provided you are invested for a long-term, thus enabling the policyholder to accumulate a healthy retirement corpus which will help you to get your early retirement life goals done.



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~Tax benefits as per prevailing Income tax laws shall apply. Please check with your tax consultant for eligibility.

The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.