1. What does ULIP stand for?

The word ULIP stands for Unit-Linked Insurance Plan. ULIPs are a combination of life insurance and investment. The investments made can be chosen by the policyholder as per the options available with the insurer. The investments help the policyholder gain returns while also ensuring that life insurance stays intact.

2. What are the different types of funds that ULIP plans invest in?

The different types of funds in which ULIPs invest are: Equity funds with majorly high-risk assets like equities and company stocks Debt funds with maximum low-risk instruments like debts and bonds Balanced funds where the money is distributed within high, low, and moderate risk assets Liquid funds with fixed-income assets like government securities and treasury bills Cash funds with assets of extreme liquidity like money market securities

3. How much return is guaranteed in ULIPs?

The returns generated in ULIP depend on the nature of the funds in which the investment has been allocated. The choice of these funds depends on the risk tolerance of the investor. For example, if he prefers higher risk to earn higher returns, the investment may focus on equities or related assets. Again, if he is a risk-averse person, debt funds may be chosen to keep potential risks low and secure the investment.

4. How are units allotted under a ULIP plan?

A part of the premium you pay for ULIP makes for its investment component. The money is utilised to buy units of different financial assets as per the risk appetite of the investor. This is done by pooling the money from various policyholders into a mutual fund-like structure, termed as unit-linked funds. Thereafter, the units are allotted in terms of the fund choices.

5. How can I track the fund value of my ULIP?

You can track the fund value of your ULIP through the calculation of the Net Asset Value (NAV) per unit and estimate the total returns accordingly. This can be done through two methods: Absolute Returns and CAGR. However, using a ULIP calculator may save you from complicated estimations.

6. What are the main benefits of ULIP plans?

The main benefits of your ULIP plans are: It may financially shield your loved ones if you die untimely It can help you realise your long-term goals through wealth creation It may save you from potential losses by offering facilities like fund switches and premium redirection It can entitle you to tax benefits under the provisions of the Income Tax Act 1961

7. Can we increase premiums for a ULIP plan?

Yes, you can increase premiums for a ULIP plan provided you pay your premiums regularly on time. The top-up premium facility in some ULIP plans enables you to top up or increase premiums multiple times within the policy term on an irregular basis. However, this can be continued till the total top-up premiums paid are less than a specified percentage of total premiums paid. The premium top-ups may be availed for using surplus funds to increase the investment component of your policy.

8. Can a ULIP be purchased with a single payment?

Yes, there is a version of ULIP called the single pay ULIP [10] that can be purchased with a single payment. Here, the total premium amount is paid at one go.

9. Can partial withdrawals be made from the ULIP amount?

Yes, partial withdrawals can be made from the ULIP account only after the 5-year lock-in period is over.

10. What does fund value mean?

A fund value is the total returns accumulated from your ULIP investment on the day of maturity of the policy.

11. How long is the lock in period for ULIP policies?

The lock-in period is for 5 years from policy purchase.

12. How can I reduce risk in my ULIP investment?

You can reduce risk in your ULIP investment by switching to low-risk funds.

13. Is interest on ULIP taxable?

Yes, returns on ULIP is taxable if the total premiums paid in a year exceeds Rs 2.5 lakhs or if the annual premium is less than Rs 2.5 lakhs but not meeting Section 10(10D) conditions.

14. Is ULIP a good investment plan?

A ULIP may be a good investment plan for those who seek a life cover and a wealth creation opportunity in a single product.

15. What is the differenWhat is the difference between a ULIP plan, Mutual Funds, and Sce between a ULIP plan, Mutual Funds, and SIP?

The prime difference is ULIP is a life insurance plan that caters to both insurance and investment needs, while mutual funds and SIPs are investment opportunities only.

16. What happens if I can’t continue ULIPs after five years?

You can surrender your ULIP policy and get back the accumulated fund value. However, do check your policy terms and conditions before discontinuing plans.

17. What is sum assured in a Unit-Linked Insurance Plan?

A sum assured in a unit-linked insurance plan is the chosen life cover that is paid as a death benefit to the policyholder’s nominee in the event of the unforeseen.

18. Can I withdraw my ULIP after five years?

Yes, you can withdraw your ULIP after five years.

19. Can I withdraw my ULIP after three years?

No, you can’t withdraw your ULIP after three years.

20. Is ULIP tax-free after five years?

No, A ULIP may not necessarily be tax-free after five years.

21. Is ULIP tax-free upon maturity?

A ULIP is tax-free upon maturity only if its annual premium doesn’t exceed Rs 2.5 lakhs or for policies where premium is lower than Rs 2.5 lakhs, Section 10(10D) conditions are met.

22. What is the average return on ULIPs?

The average return on ULIP depends on the policy tenure and the funds chosen.

23. Is ULIP better than Fixed Deposits (FDs)?

Fixed deposits come with a fixed return, while ULIPs offer returns depending on the market situation. Those who look to grow the money beyond the guaranteed fixed returns and are ready to take risks for the same might find ULIP to be a suitable bet.

24. How can I make money through ULIPs?

Yes, you may make good money through ULIPs if you stay invested in equity funds for a long time but this will be associated with market risk.

ULIP Plans: Buy Best Unit Linked Insurance Plans Online 2025

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What are unit-linked insurance plans?

ULIPs are life insurance plans that provide life cover as well as market-linked returns. These plans combine the benefits of life insurance coverage and the potential of wealth growth with market linked investments to give you the best of both worlds.

Under ULIPs, you choose the premium amount, which should be within the minimum and maximum premium limits specified under the plan. You also choose the market linked funds to which a part of your premium should be allocated.

The market linked funds can also be managed for you by expert professionals who allow you to enjoy a diversified portfolio. You can choose one or more market linked funds, depending on your investment strategy, and allocate a part of your premium accordingly. Thereafter, depending on the market performance, you can earn returns from the plan.

ULIP Plans comes with flexibility through different features like switching, partial withdrawals, top-ups, premium redirections, etc. These features give you complete control over your money, and you can manage your investment at your discretion.

Since ULIPs are life insurance plans, in the case of death during the policy term, they pay a death benefit. The benefit is usually higher of the sum assured or the fund value. However, if the life insured survives the policy tenure, the fund value is paid as the maturity benefit.

There are different types of ULIPs that you can choose from depending on your needs. For instance –

Child based ULIPs:

These ULIPs are designed to create a corpus for your child’s future needs. It secures the corpus even in the absence of the parent with the waiver of premium benefit, which is either inbuilt in the plan or offered as an optional rider at an additional nominal premium.
Whole life ULIPs:

Under these ULIPs, you can enjoy coverage up to 99 or 100 years of age
Unit Linked Pension Plans:

A type of investment and retirement plan that combines the potential for market-linked growth with the goal of building a retirement corpus.

Why are ULIPs popular?

Historically, India has been a country of sparing individuals, who prioritised saving for the future or securing a financial foothold for their loved ones in their absence, relying on insurance and traditional saving paths with returns. But as inflation grew, many struggled to cope with their post-retirement life. A recent study has shown that 80% of respondents fear their retirement savings won’t suffice. From there, the need to grow wealth in tandem with financially protecting the family’s future has emerged. The same has been corroborated in a recent survey, where 2 out of every 3 respondents have been keen to invest in ULIP plans in the coming year.

Benefits behind the popularity

For any financial solution to be popular, there have to be certain benefits that would solve crucial problems of life. Likewise, experts believe that the combination of insurance and investment opportunity in the Unit Linked Insurance Plan with its set of benefits may have been a solution for two major financial goals in a single product. Thus, it may have been considered a fitting product by those looking to cushion their loved ones’ futures financially and grow their money simultaneously.

Accordingly, the following are being pointed out as the reasons behind its popularity.

Flexible switch of funds:

For every investor, the thought of losing hard-earned money is like a nightmare. There are quite a lot of people around who tend to refrain from a potential investment fearing losses due to downturns of the market. A unit-linked insurance plan offers a plausible solution to this.

ULIP plans allow flexible fund switching between equity and debt funds depending on the market situation and the policyholder’s preference. If the policyholder feels sceptical about the performance of the investment component or prefers taking less or more risk, he/she can opt to alter the allocation of money within equities and debt funds accordingly. For instance, initially a policyholder chases higher returns by investing in risky assets like equities. With time, if he feels like slowing down and securing his/her investment, the fund switch facility may come in handy. Alternatively, if the market turns unfavourable, then also this facility can turn out to be useful.

Moreover, working on a long-term plan like ULIP, this fund-switching feature may fetch higher returns, making it suitable for long-term goals like building a retirement corpus or creating a fund for the child’s overseas education or marriage. Here one can attempt to accumulate bigger wealth by investing in equities in the first leg of the journey and eventually move to less risky assets to keep the corpus safe for the long-term goals.
Change in life cover with evolving needs:

The life cover in ULIP plans is essentially the most crucial part. Like other life insurances, the coverage or the sum assured in ULIP plans is provided to the nominee in the event of the life assured’s death within the policy term. Going by the idea of life insurance, the death benefit should suffice as a fund meant for sustenance of their current lifestyle, repayment of loans, and as a corpus for long-term targets. But what if you purchase insurance when you are young and without liabilities but increasingly feel like the coverage may not be sufficient when you get married or have children?

A ULIP may sort this crisis out. Like other insurance products, the unit-linked insurance plan also offers the option of additional coverage in alignment with evolving life stages through additional riders. If opted, it offers the option of enhancing the coverage to meet the requirements of changed life goals. Like, if the life assured gets married in the course of a policy term, he/she might want to create an additional fund as the retirement corpus for the spouse. Or, if he/she welcomes a little bundle of joy, there might be a requirement of more comprehensive coverage to etch a smooth academic career for the child. For instance, opting the increasing coverage rider, one may get to enhance the coverage amount aligning to the inclusion of a new member in the family like a spouse or a baby.

Accordingly, the life cover portion of the premium can be updated through the corresponding rider.
Tax saving

Be it insurance or investment, the target behind opting for financial products is not just ensuring the life cover or funding the long-term goals through wealth creation. Another aspect that allures income earners to these instruments are the tax benefits they offer. This is because, the Government of India is looking to boost investment and savings among citizens and also promotes these products by offering them exemptions and deductions under the provisions of the Income Tax Act 1961. Likewise, the financial products that help income earners save on taxes alongside the specific targets may garner more popularity.

The same happens with ULIP plans too. Here, the policyholder can avail themselves of a set of tax benefits through this policy. Once you purchase a ULIP, the annual premium payment up to Rs 1.5 lakhs is eligible for deduction under section 80C of the Income Tax Act 1961 (incase of old tax regime). Meanwhile, the death benefit is tax-free, and the maturity benefit is also subjected to considerable deductions under section 10(10D). Besides, if the policy has health-related riders, additional deductions can be claimed under section 80D (in case of old tax regime).

How does the ULIP plan work?

So, here’s an overview of how a ULIP works.

A unit-linked insurance plan (ULIP) is a financial product specifically crafted to meet the needs of both insurance and market-linked investment. The payment towards the ULIP plan is also termed as a premium. But here, instead of the whole premium, a part of it is allocated towards the life cover or the sum assured. This assured lump sum amount is paid to the nominee as a death benefit if the life assured passes away within the policy term.

The remaining portion of the premium is invested in market-linked funds to fetch returns and grow the wealth over time through the power of compounding. Depending on the policyholder's risk appetite, the insurer pools it in with funds available from other policyholders.

To make the most of a financial product, especially those with an investment component, it’s immensely important to know how it functions. This may not only help one to understand how it can benefit him/her, but might also help in identifying the loopholes or the areas where things can go wrong. Accordingly, it could be easier to align the product and its benefits with one’s needs, affordability, risk tolerance, and financial goals.

A policyholder’s money is invested in equities, debt funds, or a combination of the two on the basis of the level of risk he/she is willing to take. Depending on this investment component, the maturity benefit of the ULIP policy depends on the performance of the funds chosen. However, the longer the investment horizon, the higher the chances increase to earn bigger returns riding on the power of compounding.

It’s also crucial to note here that ULIP plans have a five-year lock-in period during which no withdrawal of the fund is possible. Hence, they foster long-term investment by mandating a disciplined structure.

Types of ULIP Plans

Any insurance product, comes in various shapes and sizes, catering to different needs and affordability. Knowing these types may give you an edge regarding the choice of a product that best fits to your requirements and exception.

Like any other insurance plan, ULIP too has different types that can cater to various needs and preferences of policyholders. Unless you have good knowledge of these types, it may be a little tricky to choose the one that would meet your needs in the desired manner. Broadly, unit-linked plans can be differentiated according to two major categories. These can further be classified into subtypes depending on where your premium gets invested or the nature and features of the insurance component.

ULIP plans based on investment focus:

A portion of your ULIP premiums gets invested in market-linked funds to grow your wealth through the returns earned and the power of compounding. Depending on this investment component, these plans can be of the following types according to the nature of the funds they invest the premiums in.

Equity ULIPs:

These plans invest available funds into equities or related assets like company stocks. Going by the pattern of equities, these ULIP policies may earn you returns but at greater risks. Hence, these plans cater to those who have high-risk preferences Equity ULIPs take time to grow your money and may be deemed fit for long-term goals.

Debt ULIPs:

This category of ULIPs invests in debt funds, bonds, etc., which have low risks involved. These plans may be suited to people who, look forward to lesser risk. Hence, this category of ULIPs can be a preferred bet for the risk-averse investors.

Balanced fund ULIPs:

Here the portion of the premium is invested in a mix of equity and debt funds based on the policyholder’s risk tolerance. These ULIP investments are designed to balance potential losses and gains from the risky and less or no-risk fund, thus mitigating losses, if any. Based on the risk appetite of the policyholder, the money is allocated accordingly, keeping preferred proportions of risky and risk-free assets. Hence, such plans may be a suitable choice for those with low to medium risk tolerance who want to grow their money but are scared of potential losses.

ULIP plans based on premium structure

The primary goal of ULIP plans is to provide a life cover that may financially support your family in times of unforeseen crises. ULIP insurance plans can thus also differ based on the structure of their premium payments and the nature of insurance. Here’s a glance.

Regular pay vs. single premium ULIPs:

ULIPs in which the premium has to be paid regularly till maturity in an annual, half-yearly, quarterly, or monthly schedule are called regular pay ULIPs. These may suit people who have a stable income, like a salary, and can afford to pay premiums for the entire policy term. In single premium ULIPs, on the other hand, the full premium amount has to be paid in a lump sum at one go. Beyond that, the coverage of the policy remains active for the full term. Thus, these policies may fit the bill for those who have irregular or uncertain income from business or self-employment or those who have had a windfall gain.

Guaranteed vs. non-guaranteed ULIPs:

The guaranteed ULIPs, also called type II ULIPs, pay the guaranteed sum assured to the nominee in the event of the unforeseen. Here the amount is fixed at the time of the policy purchase and may be suited to those who want to ensure the size of the corpus for the family if they are suddenly not around. Whereas the non-guaranteed ULIPs, also known as the Type-I ULIPs, pay the higher of the sum assured or the fund value to the nominee as a death benefit. However, here the policy benefit is at least the assured amount and can be bigger if the investment component performs well. This may be a worthy choice for people who want to financially cushion their family with as much wealth as possible.

ULIPs tailored for different life stages:

In this case, the ULIP allows topping up the principal amount or adding riders to enhance the coverage in a regular pay premium schedule. So how does this help? Suppose you have a ULIP policy with a 20-year term. Five years into the policy term, you suddenly decide to leave your job and start a business. Here, it could be beneficial if you have a ULIP plan with a top-up feature that allows you to enhance the coverage according to the changed plan.

How to select the best ULIP plan in India

Here’s a list of key factors to consider to select the best ULIP plan in India catering to your needs:

Defining financial goals:

Unless you have a set financial goal in your mind, working towards building a corpus is a tough game. Similarly, for an investment, a definite goal can always help you navigate well through your financial journey and reach the desired target on time. For any financial exercise, it may thus be a wise bet to start with the goals you want to fulfill.

Following this basic financial logic, if you have clarity on why you need the money and how much should suffice, picking the best ULIP for your needs may be easier. For example, if you want to create a corpus for your child’s higher education or your retirement, staying invested in a ULIP for a long term may be advantageous with its combined benefit of insurance protection as well as savings. Alternatively, if you're at a juncture in life where you're planning to get married or settled shortly after buying a ULIP policy, choosing a ULIP that has optional riders to enhance coverage according to the evolving needs of life may resonate more.

Insurance coverage and objectives:

A life insurance product is designed to financially secure a policyholder’s family in the unforeseen event of his/her demise. The sum assured as a death benefit is ideally expected to provide cover for policyholder's family and manage their cost of living, take care of outstanding loans, and create a corpus for long-term goals like a child’s education or marriage or retirement living. Knowing your goals beforehand may thus be helpful to identify the correct sum assured for a life insurance plan and fulfill your needs.

Though it has an investment component, a unit-linked insurance plan is more of an insurance product. Hence, if you have clarity on the goals you want to target with it, it may be easier to choose a sum assured matched to your needs for your ULIP plan. Choosing an adequate life cover accordingly may be a comprehensive financial backup for your family to cope and sustain, fulfilling the targets even in your absence.

Also, having the financial goals set in your mind, you may also be in a better position to understand how much wealth you need or wish to accumulate. Thus, a clarity of objectives may guide you on how to allocate the money in the investment components to earn optimum returns and balance risk and rewards.

ULIP features and benefits:

Every life insurance plan has its own set of features and benefits that may fit the specific needs of people. If you know with clarity what features and benefits are on offer in a particular product, it may be easier for you as well to gauge if it matches with your needs and expectations. A clear understanding of the respective features and benefits may lead you to the right choice.

There are a lot of ULIP plans available to make your selection from. To pick the best ULIP policy, you may look for the features and benefits and compare the ULIP plan options available. It may be ideal to compare features like:

Life cover and corresponding premium payments:

Getting insured isn’t just about deciding the life cover needed to financially protect your family from unforeseen struggles. To keep the policy and the life cover active till the end of the term, regular payment of premiums as per the chosen schedule is also mandatory. Choosing sufficient life cover at affordable premiums and a comfortable payment schedule may help you financially protect your loved ones without being a pinch on the pocket. Especially when you buy ULIP online, there’s a scope to calculate the life cover you need or the corresponding premiums payable and compare available plans based on that.

Charges involved related to mortality, premium allocation, fund and policy management, fund switches and withdrawals, policy surrender, or discontinuation:

Every insurance or investment comes at certain costs, which are deducted from the premium. Charges covering these costs are assigned to you for the policy administration and the services it offers. In turn, the life cover or the benefits might get affected too. ULIP is no exception either. It also has charges that affect the life cover and the fund value of the policy. So, knowing about those charges in your ULIP plan beforehand may help you understand details like what costs you are paying for and whether it would be profitable to alter the investment allocation, surrender, or discontinue the policy if need be. Accordingly, picking out the best ULIP policy from the available options may seem easier.

Lock-in period and withdrawal details:

The lock-in period is essentially a time frame within which no withdrawals of the invested amount are permissible. The concept is in place to ensure that the money stays invested and keeps rolling for a considerable time to generate better returns. Having clarity of the lock-in period and withdrawal details of the ULIP policy can help you figure out how long the invested money cannot be taken out or utilised for other requirements, or when and how the partial or full withdrawal facilities are available in each of them. Based on that, picking a plan suited to your financial goals may be easier.

Tax benefits available:

When you invest in a financial instrument, you ideally want to save on taxes too. Nearly every insurance or investment product these days comes with various options of tax benefits. Thus, as you invest your hard-earned money in them, you may get to enjoy exemptions or deductions that reduce the taxable income, and in turn, the tax payable. Unit-linked insurance plans too come with certain tax benefits that may help you claim deductions in your taxable income (incase of old tax regime). Hence, checking the tax benefits in the available ULIP plan options and tracing the corresponding deductions and exemptions may help you gauge which of them would suit your tax planning the most and how. An informed pick can reduce your worries.

Transparency of information shared by the insurer:

It is always easier to make a choice when you know every detail about the option to be selected from. You may get to gauge better if you know how each of them can benefit you, the potential losses, all the charges payable, exclusions and limitations in coverage, policy lapse and surrender specifications etc. It is a wise choice to make the policy choice based on the transparency of information shared by the insurer. It can save you from unnecessary struggles in the future.

Claim settlement and solvency ratios:

In the event of an unforeseen death in the family, getting hassled endlessly just to get the death claim settled from the insurance company may be a harrowing ordeal for those already going through a major personal loss. So, when you choose an insurance plan, you would want to ensure that your loved ones face no such hardship in your absence. Checking the claim settlement and solvency ratio of the insurer may sort your concern.

The claim settlement ratio in an insurance reflects the insurer's capability to settle claims. It is measured through the percentage of settled claims out of total claims in a year. The solvency ratio, on the other hand, denotes the company’s capital adequacy. Hence, if both the ratios have a high value, it would mean the insurance company is financially stable and the probability of getting the claim settled smoothly is higher.

ULIP being primarily an insurance product, knowing the claim settlement ratio and solvency ratio of the corresponding insurer may be helpful. Picking the best ULIP plan based on those ratios may save your family from unwanted hassles in unforeseen situations.

There are several insurance and investment companies in India that offer various financial instruments catering to your needs. Some are focused on insurance needs, some offer investment avenues, others, a third kind, may be designed to serve you both. A unit-linked insurance plan falls in this third category. There are a lot of companies that have ULIP plans in their platter. Each product is designed to match your needs in a specific way. It may indeed be a task to choose one from an array of options that would be tailor-made for your requirements, goals, and affordability.

To ensure that you gain the most from your investment, you may choose the best ULIP aligned to your needs, affordability, and preferences. While, it’s also crucially important to find the one that has the well-performing funds in its kitty.

Who should consider investing in ULIPs?

When it comes to making financial decisions, it’s always better to align them to individual goals and abilities to execute the decision in the correct manner. This would lead to higher chances of reaping benefits from it and help in making correct choices of financial products accordingly. Likewise, every financial instrument in the market has its own set of features that may fit the bill for specific categories of people and their respective needs. It’s therefore crucial to trace beforehand who should ideally choose these products to avoid wrong investment decisions and losses thereby.

Let’s take the case of ULIPs. Do you know who should consider investing in them? Here’s a guide to make an informed choice.

Those looking for long-term investment:

A ULIP insurance plan has an investment component in its premium, which is invested in equities, debt funds, or combinations of both. Relying on the power of compounding, it is expected to yield better returns over a longer investment horizon. So, if you are looking for a long-term investment option for future goals like a child’s higher education, marriage, or retirement corpus, a ULIP may be useful.

Those who need both insurance and investment:

A ULIP is a combination product offering both insurance and investment opportunities in a single policy. Hence, if you are looking to financially protect your loved ones through life insurance and grow your wealth at the same time, purchasing a ULIP policy may be beneficial.

Those seeking to save on taxes:

A ULIP policy is designed to provide tax benefits on annual premium payments, death, and maturity benefits under the provisions of the Income Tax Act 1961. So, if you want to save on taxes through your investment (incase of old tax regime), the ULIP may be a worthy pick.

Those preferring low/medium/high investment risks:

With market-linked investments, come risks of losses too. A ULIP invests a portion of the premium into funds chosen by you to fetch returns from the market and grow your wealth. Moreover, the plan allows fund switches through which you can reallocate your money to avoid losses or potential risks. So, if you prefer low to medium risk, a ULIP may empower you to select funds or reallocate your investment by switching towards less risky funds (like debt). If at any life stage, your risk appetite is higher and depending on the market performance, you may switch or allocate your investment towards high-risk funds (like equity).

ULIP Plan Buying Guide

Whether you want to choose an insurance product to financially secure your loved ones from unforeseen sufferings or you want to invest to accumulate a corpus for your long-term goals, it’s a cautious journey. From making the choice to finally making the purchase, you may want to make it an informed ride. While there are professionals to help you out, it might be a time-consuming process to meet them, have a discussion on choices, pick out your preference, do all the paperwork, and buy the product. And it’s squeezing out that much time, which may become difficult for many.

Take the case of Arjun, an extremely busy corporate employee who wants to buy an insurance plan for his wife. It has been seven days since he has been trying to fix a meeting with the insurance agent and failing to do so for his busy schedule.

For many like Arjun, the same process done online would have been a much easier deal. Keeping in mind the lack of time these days, many insurers are coming up with online purchase options. Sitting in the comfort of your home and at a convenient time, you can simply go to the chosen website and complete the formalities to make your purchase.

Here’s a detailed guide:

Steps to purchase a ULIP plan online

Suppose you are looking to buy a ULIP plan to meet the combined requirement of insurance and investment. Making the purchase online may not only save time and complicated paperwork but can also take you through a smooth and hassle-free buying experience.

Checking out this step-by-step procedure may help you here.

Research and compare ULIP policies:

There are quite a few insurance companies available who have ULIP plans on their platter. Each of these products has its own set of features and benefits, which may cater to varied needs and expectations. So how do you choose the one that is tailor-made for you? To trace the best ULIP plan in India that matches your criteria, you may need to do good research and compare the details. A good look at the following things may help.

Life cover and policy term:

A ULIP plan is designed to fulfil both your insurance and investment needs. So, while the life cover needs to suffice for your financial protection requirements, the policy tenure should match the wealth creation goals you have set for yourself. Different ULIP plans come with different sum assured and policy terms. You may pick a sum that would smoothly cover the financial needs of your family in your absence. On the other hand, if you have long-term goals like a retirement corpus or funds for your child’s marriage, a long policy tenure may be worthy. Since the power of compounding works well in longer horizons, it may bring you a bigger scope of wealth creation.

Benefits and riders available:

Different plans come with different sets of features and benefits as well as optional riders to enhance your coverage. However, do note that these benefit are available at an additional nominal premium. Some benefits include especially those related to coverage, fund value, and income taxes, as well as the availability of important riders covering accidents and critical or terminal diseases, are crucial, as these would optimise your gain from the policy. Hence, checking them beforehand and taking your pick accordingly may be a fruitful practice.

Charges:

A ULIP plan has various charges for premium allocation, fund management, mortality, administration, and services like surrender or withdrawal. The deduction of these charges may affect the life cover and fund value of your policy. Thoroughly checking and comparing these charges in each option can help you select the one with lower charges to gain more from your investment.

Rules and regulations:

Facilities and services like surrenders, withdrawals, fund switches, or premium redirections are governed by specific rules set by different insurers. These rules can affect your choice and timing of opting for these facilities. Hence, comparing plans based on the rules may help you find the policy that best suits your needs.

Exclusions and limitations:

Often insurance policy coverages exclude or get limited for certain areas or situations. It’s critical to identify them before you make your choice of plan. This may save your family members from unwanted hassles at the times of crises.

Claim settlement and solvency ratio:

Claim settlement and solvency ratios are the reflection of an insurer’s track record of settling claims and financial stability. A high ratio in each case may lead to a higher probability of getting death claims settled. While you compare plans, these ratios should be critical points on your checklist. Selections based on them may help your loved ones avoid unwanted struggles in the event of the unforeseen.

Evaluate your financial goals:

Everyone has separate targets to fulfil in life. Insurance or investment opportunities chosen based on those targets may fetch better benefits or returns. So, that makes it even more important to choose and evaluate your financial goals correctly. Whether you want to fund your child’s overseas education or buy a property at retirement both require separate choices of plans. So, before you finalise your choice of ULIP, it may be a wise step to identify specific goals and the fund needed to support it. Based on that, taking your pick may be a good bet.

Understand fund options and allocation:

A unit-linked insurance plan splits your premium to utilise the portions in its insurance and investment component. A part of the premium is invested in market-linked funds of your choice based on risk appetite to earn returns. As the policy expires, the amount you receive as a maturity benefit is the total fund value on the date. But not all ULIPs offer a similar number and nature of funds to choose from. Hence, understanding the ULIP offerings in terms of fund choices that suit you, the track record of fund performances, and the allocation and reallocation of your investment through fund switch and premium redirection facilities may be critical. An informed choice of a ULIP plan based on this knowledge may help avoid potential losses and lead to better gains.

Check premium payment options:

To keep your ULIP policy active till the end, you would need to pay all the premiums on time as per the decided schedule and frequency. So, it’s important that your choice of ULIP policy aligns with your affordability and convenience. Checking the available premium payment options and picking the one that suits you may be worthwhile. For example, if you are a salaried person, a regular pay option with annual, half-yearly, quarterly, or monthly premium payment as per your convenience may seem a good fit.

Review policy features and benefits:

Before you take the final step towards the purchase of a ULIP, reviewing the policy features and benefits is an important check. You can look for the smallest details in features, tax benefits available, the rider choices, investment offerings and options, and charges and penalties associated just so that you don’t regret it later on.

Fill in the application form:

As you take the first step towards the purchase procedure, you’ll need to fill in an application form. A careful reading of the terms and conditions and eligibility criteria may help you on this part. You can fill in the details online, check the ULIP calculator for premiums payable for the coverage you need, and make the necessary choices of options as and when required to furnish the required information correctly. You may resort to the available guidelines to submit the relevant supporting documents.

Make the first premium payment:

As you submit the application, you will have to wait for the insurer to approve the policy proposal. The risk cover will only begin after the receipt of the premium. After the proposal is accepted, it’s time for the first premium payment to complete the purchase. You can make an online payment through your preferred avenue from the options available.

Receive the policy confirmation and documents:

Once you are done with the online application and the corresponding first premium payment, an online confirmation will reach your email inbox. You may receive the policy document in the mail post the necessary approvals from the insurance company.

Benefits of ULIP

Every financial product has a specific set of benefits that may cater to certain needs of people. Knowing them with clarity can be useful, as it will enable you to pick the right product suited to your needs. A combination of an insurance and a market-linked investment opportunity, a unit-linked insurance plan too has a set of specific benefits that can cater to varied needs. If you know them, the chances are higher that you will pick the product tailor-made to your requirements. Moreover, this may lead to a better utilisation of the ULIP returns and consequently the fulfillment of the desired goals. So, if you decide to purchase a ULIP plan, it may be useful to know and understand the policy benefits well. Here’s a look at the list.

Maturity and Death Benefits:

A unit-linked insurance plan is a life insurance plan combining an insurance and an investment component subject to market risks. A part of the premium towards the ULIP policy forms the life cover, while the remaining portion gets invested into equities, debt instruments, or a mix of both.

If the life assured dies within the policy term, the nominee is entitled to a death benefit. The amount payable is the specified sum assured of the policy, which is designed to act as a financial shield for the bereaved family in a crisis.

The maturity benefit, on the other hand, is generated from the investment component of the ULIP. The amount is payable when the policy matures and the life assured survives through the entire term. Thus, the maturity benefit of a ULIP policy is the total fund value at the end of the policy term. The same depends on the nature of the fund chosen for the investment component and how they perform through the policy term.

Wealth creation through long-term investments:

Designed to meet long-term investment goals, the investment horizon in a ULIP plan is also of a long tenure. In these policies, the wealth creation is taken care of by the investment component of the premium. Here a part of each premium paid is invested in equities, debt instruments, or a combination of the two. The money thus invested earns returns from the market-linked funds, which in turn grow in volume through the power of compounding. In the process, the power of compounding at each stage or premium schedule yields returns from the principal amount invested, as well as on the returns already accumulated. Thus, the wealth may grow in the long term, as compared to a simple rate of returns.

Flexibility and fund switching:

The investment component in a ULIP policy premium can lead to losses too, owing to volatile market conditions. This can be avoided or minimised if the policyholder has a scope to alter, adjust, or reallocate his/her investment as per the market conditions, predictions, or changes in life stages or risk tolerance. On similar lines, the insurance part may also turn out to be more useful if there’s a scope to enhance the life cover. The same has been addressed by the ULIP features. A unit-linked insurance plan offers the flexibility of topping up the premium as and when required to increase the investment or adding riders to the existing insurance part for more comprehensive coverage catering to evolving needs of life. The investment component in ULIP policies also offers the facility of multiple fund-switching within the policy term. This may come to your aid if the market takes a downturn, increasing the risk of losses, or you feel that your fund’s performance is not up to the mark. The fund switch feature in a ULIP allows you to alter and adjust the fund allocations, minimising potential losses or optimising returns thereby. You may thus have the advantage of switching funds from equities to debts when the market conditions are bad or from debts to equities when the situations are good to reap better returns from high-risk assets. Accordingly, the fund value gets optimised.

Tax benefits:

Like other insurance or investment instruments, ULIP too offers tax benefits to the policyholder. Here you can claim deductions for annual premium payments up to Rs 1.5 lakhs under section 80C of the Income Tax Act, 1961 (incase of old tax regime). The maturity benefit is also eligible for tax exemption subject to section 10(10D). Besides, the death benefit payable to the nominee in the event of the policyholder’s demise is also tax-free under section 10(10D). Moreover, if you add health-related riders to your ULIP plan, they too enjoy tax deductions of up to Rs 25,000 per annum under section 80D (incase of old tax regime). So, if you are looking to save taxes through your insurance and investment, a ULIP counts as a worthy choice.

Why invest in ULIPs?

Knowing why you want to invest in a particular financial product gives you clarity about what features or benefits you might be looking for in it. It might also give you a fair idea of what targets you want that product to fulfill. Whether you are considering an insurance or investment instrument, if you know why purchasing the same can be beneficial, half the work is done.

As a recent survey notes, there has been considerable inclination of investors towards purchasing ULIPs. If you are someone giving it a thought, it may be useful to know whether or how these policies benefit you. Here’s a clear understanding of the specific advantages offered by a ULIP can help further. Reasons why you can choose to invest in unit-linked insurance plans may be solidified with the following features available in unit-linked insurance plans.

Premium redirection:

At the time of purchase of a ULIP plan, one needs to allocate the premium into chosen funds. However, there’s the option of premium redirection, through which one can reallocate the investment in a different mix of instruments for future premiums. This feature might be helpful if you prefer to take lesser or bigger risks in the future, based on the evolving needs and stages of life, or anticipate the market to behave in a certain way in the future. Generally, this facility can be availed free of cost in most ULIP plans.

Fund switches:

There can be scenarios where you are sceptical or unhappy about the performance of your existing funds or planning to grow your money in a bigger way compared to the recent allocations. A ULIP policy offers you the option to switch funds and reallocate your money between a new combination of debts and equities. However, insurers mostly offer only a few fund switches for free. Post that, if you prefer further adjustments or alterations of your funds, charges per switch are to be paid.

Top-up Plan:

ULIP plans offer a top-up premium facility only to the policyholders who pay their premiums on time on a regular schedule. This feature allows them to increase the premium payment over the regular amount irregularly at any point of the policy term, provided the total of top-up premiums doesn’t exceed a specified percentage of total premiums paid. The topped-up premium can be utilised for increasing the investment component of the investment plan and might translate to a higher sum assured in some ULIPs. This facility may thus help a policyholder more if he/she is keen to invest further in market-linked funds.

Lock-in period withdrawal facility:

A ULIP comes with a mandatory lock-in period of five years within which no withdrawal of funds is allowed. Beyond this period, full or partial withdrawals can be made by the policyholder if all the premiums have been paid for the first five years of the policy. This may encourage you to stay invested for the long term and thus accumulate bigger wealth. In turn, these plans may suit people who start early with the ULIP purchase when they have no or fewer liabilities.

Why Invest In ULIP

Features of ULIPs offered by Bajaj Allianz Life Insurance (BALIC)

High-Performing Funds:

As a hybrid financial product by nature, ULIP policies serve as a life insurance as well as an investment opportunity for people. Amongst them, those who prioritise wealth creation through their policy look forward to high-performing fund choices and those who prefer medium risk have the option of investing in other funds.

In a ULIP plan, a part of the premium paid is dedicated to the insurance part and forms the life cover payable as a death benefit. The remaining portion is pooled in by the insurer to build unit-linked funds and purchase units of financial assets depending on the policyholder’s choice of risk. Likewise, this investment component of the policy fetches returns from the market and forms the maturity benefit, which is the total fund value on the date. Naturally, staying invested in high-performing funds can lead to bigger maturity earnings.

Here's where the Bajaj Allianz ULIP plans may come into the picture. Offering the combo benefits of insurance and investment, like all the ULIPs, the BALIC ULIPs promise to stay committed to crafting value-packed and products to fulfil your life goals. As of 31st March 2024, our ULIPs have Rs 1,20,994 crores worth of assets under management. **

There’s a wide variety of funds that cater to your set of needs, comprising the aggressive equity funds, conservative debt funds, or a mix of both to choose from, depending on how much risk you are willing to take. As of the date, 4th February 2025, here’s a glance at some of its fund performances.

Customer-Centric Services:

Catering to both insurance and investment needs, ULIP plans have carved a niche for themselves as investment choices. They may have appealed greatly to those looking to financially protect their loved ones and accumulate wealth simultaneously through a single product. Besides, it’s the set of customer-friendly features in a ULIP policy that can be considered as a prime reason behind its popularity.

Flexible premium payment:

While a ULIP policy may address your concerns like financially safeguarding your family in your absence or wealth creation to meet life goals, it’s equally crucial to pay all the premiums on time to keep enjoying its benefits. This requires your premium payment schedule to align with your affordability. Our ULIP policies offer options like annual, half-yearly, quarterly, and monthly premium payment frequency. It may offer you the freedom of choosing a frequency that fits well with your affordability.

Top-up premiums:

There can be situations where you suddenly have a surplus fund at hand. Since a unit-linked insurance plan utilises a part of its premium to buy units of market-linked funds to earn ret urns, an increase in this investment component may elevate the chance of earning bigger returns. The facility of top-up premiums does exactly the same. Some BALIC ULIP plans, offer this flexibility of paying top-up premiums as and when needed so that you may get to make good use of surplus funds. However, when opting for a top up you must note some of the conditions prescribed, among others:

A top-up premium is any extra payment you make on an ad hoc basis, which is treated as a single premium for insurance coverage purposes. These can only be paid while the policy is active and regular premiums are up to date, and if the policy terms allow it.
Any top-up premium paid (except in pension products) will also include life insurance cover. Once paid, top-up premiums cannot be withdrawn for five years from the payment date, unless the policy is fully surrendered.
For non-pension products, no top-up premiums are allowed in the last five years of the policy term. In pension products, top-up premiums are permitted if they provide the assured benefits linked to each payment.

Easy fund switch and premium redirection:

ULIPs offer one of the most crucial customer-centric features in some of its policies. These ULIPs let you decide the best possible investment strategy for yourself and let you change the allocation of your investment as per the fund performances, evolving risk appetites, and changing market situations. So, if ever you feel you have underperforming funds, anticipate a major change in the market or prefer lesser risk with aging and changing life goals, facilities like fund switches and premium redirection may let you do it in an easy and hassle-free manner. A fund switch option lets you reallocate your existing funds, and through premium redirection, you can set a new fund allocation for future premiums.

Competitive Charges:

To provide you with an efficient and smooth policy experience, insurers often levy different charges and fees. ULIP plans are no exception. There are charges payable towards premium allocation, mortality, fund management, fund switches, policy administration, withdrawals, surrender etc., which get deducted from the premiums or the fund value, in turn affecting the life cover or the maturity benefit. So, a clear knowledge and understanding of this cost may help you gauge the potentials of your policy and maximise returns through informed investment decisions. ULIP plans that offer competitive and transparent fee structures may therefore appear favourable to investors. With recent introductions of lower and minimal charges, BALIC ULIPs seem to have gained that trust. Reformed charges like zero premium allocation fees and relatively low fund management fees, the return of the mortality charges feature, and the transparent disclosure of the fees may have been the key reasons behind its popularity.

How to Calculate ULIP Returns with Power of Compounding?

Before deciding to purchase a unit-linked insurance plan, you may want to gauge how well it can perform. Also, if you have already bought a ULIP policy, you may want to check whether it can fetch the returns you expect. This would help you figure out if you need a fund switch or a premium redirection of the investment component in your ULIP plan or keep its portfolio as it is. In both cases, calculating the returns of the ULIP may help.

Returns in a ULIP insurance plan are generated through the power of compounding. It is a process in which returns are generated from the principal investment at the start and from both the principal and the returns already earned at every next step. Hence, the longer you keep your money invested, the bigger will be the chances of earning higher returns from equities or related funds.

So, how do you calculate the ULIP returns with the power of compounding?

There are two methods of calculating ULIP returns:

absolute returns
compounded annual growth rate (CAGR)

Let us now delve deeper to understand the processes.

Absolute Returns Method:

Under this method, also termed as Point-to-Point Returns, the calculation of ULIP returns is based on the values of the current and initial Net Asset Value (NAV) of the plan scheme.

The formula for calculation here is: [(Current NAV – Initial NAV)/ Initial NAV] x 100

So, you may simply do the following steps:

Find the difference between the current and initial NAV.
Divide the value with the initial NAV.
Multiply the amount by 100 to arrive at a percentage value.

Going by this method, if the NAV of your ULIP at the time of purchase was Rs 250 and the current NAV is Rs 350, then after 1 year the returns from your ULIP will be

[(350 – 250)/ 250] x 100 = 40%

Compound Annual Growth Rate Method (CAGR):

CAGR hints at the annual growth of the investment over a period of time and is calculated in the following formula:

[{(Current value of NAV/Initial Value of NAV) ^ (1/number of investment years)} – 1] x 100

So, if your ULIP has invested in a scheme that has an initial NAV of Rs 25 and a current NAV of Rs 35 after 5 years, then the returns will be:

[{(35/25) ^ (1/5)} – 1] x 100 = 6.96%

Comparing the two methods:

According to experts, both methods follow simple calculations that are easy to use and understand. However, each of them have its own drawbacks too. The absolute returns method, for example, is good for the initial phase of investment, as it relies on simple returns on the initial investment. But since the power of compounding comes into action over a long-term investment, this method might not help you estimate correctly the actual returns. The CAGR method, on the other hand, doesn’t take into account the market volatility through its impact on returns. So, even if the investment grows in a stable manner for some time, it might not be correct to assume.

Instead of stepping into the grips of dreaded formulas and mathematics, you may resort to a ULIP calculator to estimate the returns based on the power of compounding.

Maximizing ULIP Returns Through the Power of Compounding

ULIPs can accelerate your wealth growth with compound interest. Let’s explore how your investment can grow under different scenarios:

Monthly Contribution	Investment Period	Estimated Returns at 4%^	Estimated Returns at 8%^
INR 1,60,000	10 years	INR 2,30,51,725	INR 2,78,14,199
INR 87,000	15 years	INR 2,09,04,625	INR 2,83,46,806
INR 51,000	20 years	INR 1,82,24,184	INR 2,80,06,322
INR 20,000	30 years	INR 1,34,60,385	INR 2,71,87,970

As shown in the table above, ULIPs results when you remain invested for the long term. Higher-return funds can significantly grow your corpus, enabling you to accumulate substantial wealth even with a modest initial investment. This example highlights the power of compounding and how ULIPs contribute to building long-term financial security.

Power of Compounding Returns

For any long-term investment, or even some long-term savings, the core idea that makes them lucrative is the power of compounding returns. In the simplest of terms, it is the method in which the earnings or returns grow as the investment. Empowered by the mechanism, even a meagre amount of an initial investment can grow into substantially big if one stays invested in it for a long term.

Let us dig a little deeper into the idea. The power of compounding is a tool or a concept derived from the idea of compound interest. Likewise, when you invest an amount, the first return is generated from this principal investment. At the next step, the return gets generated from the principal as well as the returns accumulated in the previous step. The same process is continued for the rest of the investment horizon.

The power of compounding earns returns not just from the principal but also from the returns already accumulated as well, thereby earning higher and faster than the process of simple returns. Also naturally, the longer one stays invested in a financial product, the bigger the corpus accumulated through this process.

In a ULIP policy, the premium comprises two parts—one forms the insurance benefits while the other gets invested in market-linked assets to fetch returns from the market. So, while the insurance part takes care of the financial security of your loved ones in your absence, the investment part is dedicated to wealth creation. This wealth creation process thrives on the power of compounding. Whether you choose to invest in equities, debts, or balanced funds, your corpus is built on the mechanism of compounding. However, the amounts of returns at each step will depend on the fund selected, i.e., whether they are high risk-high gain, low risk-low gain, or balanced ones, while the size of the corpus is on the tenure of the investment.

Those who purchase a ULIP plan to make the most of its investment component may want to trace how much returns can be expected from the investment they make. So, a fair idea of how the power of compounding works may thus be helpful to understand the wealth creation process and get an estimate of the expected returns.

Long-term financial growth

When you invest with a target of fulfilling long-term financial goals, a long-term investment and a corresponding financial growth may be ideal. Long-term financial instruments mostly operate on the power of compounding; you may profit more in terms of returns if you stay invested for a longer horizon.

On the similar lines, ULIP is designed to grow your money over a long period of time so that you make the most of its power of compounding benefits. Fostering long-term financial growth, the unit-linked insurance plans come with a lock-in period of 5 years and that’s where the power of compounding comes into play. In those 5 years, the investment horizon grows the initial investment you put in and builds up a corpus.

The power of compounding returns has a long time to generate and multiply returns, through which you may get to grow a substantial corpus.

What is a ULIP calculator?

A ULIP calculator is an online estimation tool available on the internet and most of the insurance company websites. Here you need to input details of your investment plan, based on which the calculator estimates the expected returns. So, as you key in details like the premium you decide to invest and its frequency, the probable funds in your portfolio, and the policy tenure, i.e., the investment horizon, the online calculator fetches for you how much returns your ULIP investment is expected to generate.

When you invest in a ULIP plan, the policy is designated to provide a death benefit and a maturity benefit. The death benefit is the outcome of the insurance component where a sum assured is payable to the nominee in the event of demise of life assured within the policy period. The maturity benefit, on the other hand, is payable if the life assured survives the policy term. It is generated through the investment component, and the amount paid is the total fund value at the time of the policy maturity.

While the sum assured in a ULIP plan is surely a source of mental peace, ensuring a financial shield to the family in the life assured’s absence, the maturity benefit may interest him/her more. Because it’s the policyholder who will receive and enjoy the benefit and fulfil desired long-term goals with the pay-out. But to set targets and purchase a policy to fulfil them, one needs to know beforehand how much returns the investment component of the ULIP policy may fetch from the market. But calculating the expected returns from a chosen set of funds is no easy deal. Here’s where a ULIP calculator may turn a saviour.

Knowing the benefits of a ULIP calculator may help you understand the tool and its functionality in a better way. Here’s a glance.

Quick and easy estimation:

A ULIP calculator may save you from the pain of dreaded calculations. Here you need to input the parameters, like the amount of investment or its tenure and the frequency of premium payment, and the tool provides the estimations on your fingertips instantly. Hence, while it saves time, it saves you from hassles too.

Projection of future returns:

A ULIP calculator estimates the expected returns from a ULIP policy based on the amount of investment and premium payment frequency. This may help you gauge whether the plan suits your financial targets and risk appetite.

Assessment of risk and returns:

Calculating possible returns, a ULIP calculator may guide you to the best allocation of funds given your risk tolerance. This in turn may help you balance risk and returns in your investment portfolio.

Comparison of available plans:

When you are stuck in your choice of the best ULIP plan among the available options, a ULIP calculator may come to your rescue. Calculating the expected returns can help you make a correct pick based on your financial goals and risk-taking ability.

What is ULIP NAV?

As you already know, ULIP plans don’t just provide you with a financial cushion for your family to support them in your absence but also help you increase your wealth parallelly. Here, as you pay premiums to secure your loved ones’ future, a part of it gets invested in market-linked funds to fetch returns. You may choose funds that match your risk tolerance, i.e., assets with high risk if you are ready to play a gamble to earn high returns and those with low or no risk when you want to keep your money safe.

However, how much your wealth will grow depends on how the selected funds perform in the market and the situation the market is in. You may earn the desired returns or even more if the market is in a full swing, while the chances of losing money or not getting the preferred returns increase when there’s a downturn. While ULIP offers you the facility of fund switches or premium redirections to sail through the rough weather, you may reap its benefit if you gauge how the funds are performing or are likely to perform. To battle with the volatility of the market, you may thus need to calculate the existing or potential returns of the funds in which your ULIP investment is made.

So, how do you measure the returns on each of your funds and, correspondingly, the returns on your ULIP investment?

According to market norms, returns from an investment or a fund are measured by its net asset value (NAV). So, here’s some clarity on what NAV is and how it is calculated.

So, the NAV per unit is calculated as:

NAV per share = (Assets – Liabilities) / Total number of outstanding units on date,

where the units refer to the shares of a company you have bought or have invested in.

Here’s an example for better understanding.

Suppose that fund has a total of Rs 10 lakhs invested in different securities. In addition, there are Rs 70,000 in cash and cash equivalents and Rs 40,000 in total receivables on a specific day. The accrued income for the day is Rs 7,500. On the other hand, the fund has Rs 1,30,000 in short-term liabilities and Rs 20,000 in long-term liabilities on the same date. Accrued spending for the day is Rs 1,000. Meanwhile, the fund has 50,000 shares outstanding.

Here, the total value of assets of the fund is:

Rs (10,00,000 + 70,000 + 40,000 + 7,500) = Rs 11,17,500

Whereas, the total value of liability is:

Rs (1,30,000 + 20,000 + 1,000) = Rs 1,51,000

So, NAV will be:

Rs (11,17,500 – 1,51,000) = Rs 9,66,500

Hence, the NAV per share will be:

Rs 9,66,500/50,000

= Rs 19.33

How to monitor ULIP fund performance?

It’s the flexibility of ULIP investment that makes it different from other investment opportunities. Here you can adjust and reallocate your investment and fund choices as per your needs, willingness, and speculations through the facilities like fund switches or premium redirection. But to figure out when to make those changes, you need to track and monitor how your existing funds are performing.

If you are a new investor, it may seem a bit challenging to track your ULIP plan fund performance. However, once you get into the process, it would gradually become easier.

Monitoring the fund performance can be done in two phases:

keeping a check on the investment
tracking the returns

Monitoring your ULIP investment:

You may need to follow certain steps to keep a check on your ULIP investment. Below is the list:

Read the policy document carefully to learn and understand the details of the market-linked investment component in your ULIP policy. This may help you assess your investments better.
Most insurance companies have their online portal. There you can register and log in to your account for all the policy details, premium payment history, and investment records, including the fund value.
Fund value is the current value of your ULIP investment, which can be checked from the portal. This value is the total worth of all the units you have through your investment in various funds. Thus, the ULIP fund value keeps changing based on the performances of the funds where your premium is invested.
The ULIP investment portfolio includes various funds, such as equities, debt instruments, or balanced funds, you can take your pick depending on your preference and risk tolerance. To stay updated about how your ULIP investment is performing, it’s crucial to track each fund’s performance and growth regularly.
Regular premium payments are a must for your investment fund to perform optimally. This is because defaulting on premium payment can lead to penalties, which in turn may reduce the fund value. So, keeping track of premium dates and paying them on time may be a helpful practice.
ULIP has different fees associated with it, like the mortality charges, premium allocation charges, fund management charges, surrender charges, etc. Deduction of these charges reduces the amount available for investment.

While you may note the fund value and the factors that can affect it, the other part of the monitoring involves tracking the returns.

Monitoring the returns

Here’s a glance at how you can track the returns from your ULIP plan.

ULIP returns are estimated as the difference between the premiums paid and the fund value. You may calculate it by deducting the amount of total premiums paid from the current fund value and adding bonuses or additional benefits, if any, to it. Suppose the total fund value is Rs 1.5 lakhs, and you have paid premiums worth Rs 1 lakh at a given point. Then the ULIP return will be (Rs 1.5 lakhs – Rs 1 lakh) = Rs 50,000 if there is no bonus or extra benefit available. To avoid hassles of rigorous calculations, a ULIP calculator may come to your rescue.
To get an idea of your ULIP’s performance, comparing it to the benchmark value may be helpful. The benchmark is designed to mark a fund’s performance by setting an index.
The investment horizon plays a crucial role in fetching returns for ULIP investments. It may be worthy to remember that the ULIP returns are subject to market risks and can fluctuate over the short term. So, it might make sense to consider the investment tenure as you check the returns. As ULIPs are, by nature, long-term investment plans.
Tracking both sides, i.e., the investment and their growth as well as the returns earned out of them, may give you a fair idea of how your ULIP fund is performing. This may enable you to make correct choices and timings of fund switches and premium redirections, if needed.

Managing your ULIP investment

As the structure of unit-linked investment plans suggest, a portion of the premium of your policy is invested into market-linked funds to earn returns. The returns earned are accumulated through the power of compounding that grows your wealth over a long term, generally 10-15 years. It’s thus the performance of these funds that determines how big your corpus can get. In turn, it’s this fund value that defines how much money you earn out of your ULIP plan as the maturity benefit.

A ULIP plan allows facilities like fund switches and premium redirections to reallocate your money in different combinations of funds in the existing setup or for future premiums. Also, there’s a feature available to top up premiums that may help you increase the amount available for investment. These are useful measures as they may help you in situations like where you feel the funds are underperforming; want to take lesser or bigger risks to earn stable or higher returns; or you speculate that the market is going to behave in certain manners.

Insurance companies offering ULIP plans have professional fund managers who allocate the money, track and monitor the fund performances, and make the necessary adjustments and alterations if needed on your behalf. By seeking better management of your hard-earned money through trusted hands, you can also hire such a professional personally or rely on the advice of an investment consultant. But it may be more profitable if you have the clarity of the fund concepts on your own, ULIP features, and facilities and take investment decisions accordingly, as it is about your money at the end of the day.

So, here’s an overview on how you can do it, take control of your ULIP investment and make informed choices.

Self-switching vs. Automatic switching

Market fluctuations govern fund performances in unit-linked insurance. So, if the market is in favourable condition, you may earn more from your investment. Conversely, if the market scenario goes against the funds you’ve selected, you may incur losses. There can also be situations when you anticipate the market to go up or down in the near future, which may require a reallocation of funds. Furthermore, in a personal space, you can have a change in your risk appetite due to age or evolved life stages.

In any of these cases, ULIP offers a way out. The fund switch facility may help you do the desired reallocation of your portfolio by switching funds from equities to debt funds or vice versa or putting your money into balanced funds. For those who are market savvy, it may seem an easy deal. But what if you are not?

Here too your ULIP policy may come to your rescue. Fund switches in a unit-linked investment plan can be done in two ways. One is the self-switching, where you carry out the switches yourself if you have the required knowledge. The other is the automatic switching or the wheel of life option, which is available in some ULIP plans. Here the fund managers of the insurance company take charge of the fund switches on your behalf.

Let us now delve deeper into the details for a better understanding of these options.

Self-switching of funds

Regular frequent tracking of the ULIP investment helps you aware of its performance, growth, or potential gains and losses. Similarly, a regular study of the market gives you clarity and confidence to understand if and when the situations may turn to your favour or show signs of potential turbulence. These may empower you to gauge if you need to modify the allocation of your money as a corrective measure if your chosen funds are underperforming or if there are indications of potential gains or losses. Alternatively, it can be evolving life stages or risk tolerance that may require you to alter the nature of your portfolio.

After discussing with the financial advisor about the market conditions or a regular tracking of market movement self-switching of funds may be a worthy choice to opt for. Here you can take charge and manage the portfolio reallocation all by yourself. Suppose you can trace indications of the stock market taking a downturn. Here you may take out money from equities or related high-risk instruments and invest it majorly into hybrid funds, debt funds, bonds, or liquid funds to minimise potential losses. Self-switching can also be useful when you've earned excess returns and want to safeguard your capital appreciation. It allows you to reallocate funds from high-volatility investments to relatively stable options, such as hybrid or debt funds. In this way, it helps lock in and protect the gains you've accumulated during the policy term. Again, for instance, you have a major milestone like the child’s overseas education for which you need a large corpus, or your policy is heading towards maturity. Here also, moving your investments to debt funds, bonds, or other low-risk instruments may help you secure a capital appreciation of the investment and make way for expected returns at withdrawal or maturity.

For self-switching of funds, there are two things which you need to master. One is, when to carry out the switch, and the other, how to do it.

The timing of the switch is extremely crucial, as the fund performance and returns will get impacted by it. Starting with more high-risk funds that can fetch bigger returns over a long term and gradually shifting to a hybrid or debt-heavy allocation to secure the corpus towards maturity, is recommended. Here’s an example for a better understanding.

Suppose you are a 30-year-old with no dependents and purchase a ULIP plan with a 30-year policy term, eyeing a retirement corpus. Young and free of liabilities, you can start with an all-equity fund, i.e. 100% investment in equities at this stage that may fetch you high returns over the long term. Now, you plan to get married and have children five years down the line, which would mean increased responsibilities.

Automatic switching of funds

Not everyone is a ‘pro’ in understanding, tracking, or decoding market movements or fund performances. Also, there can be ULIP policyholders who don’t have the time to monitor the market situations on a regular basis. For both these categories, automatic switching of funds can be a feasible solution. Some ULIP plans offer an asset allocation fund or a portfolio strategy called ‘wheel of life’ to cater to this requirement.

If you choose the asset allocation fund, the fund managers of your insurer take charge of the situation. Reviewing the market at regular intervals, they keep switching your funds to fetch optimum returns from your ULIP investment.

Availing the wheel of life portfolio strategy, on the other hand, may feel like putting the investment component on an ‘auto mode’. Here the fund switches are pre-defined and happen automatically in specified intervals. Here your investment allocations gradually move from equity to debt depending on your age and remaining policy term. This may bring you optimal returns, balancing risk and return across the investment horizon.

Studies have recorded ULIP investors securing 8-9% higher returns with regular asset reallocation compared to an aggressive or risk-averse investor. That shows, whether you choose to self-switch the funds or opt for the automatic switching, regular modification of the ULIP investment portfolio may protect you from the volatility of the market to some extent.

Adding Investment top-ups

When you want to manage your ULIP policy's market-linked investment part better, you may want to avail yourself of all possible scopes to do it. While fund switches let you change the combination of assets in your ULIP portfolio with the existing amount of money, you may also want to invest more to gain higher returns from the market. It’s the size of the premium you pay for the ULIP policy that determines how much money is available for the investment component after keeping the insurance component aside. So, in order to make more money available for investment, you may need to raise the premium payable. This can be done through the top-up premium feature of your ULIP insurance plan.

A top-up premium facility enables the policyholder to increase the premium at any point during the policy tenure. This top-up is an extra amount paid over and above the existing premium amount and can be done irregularly, as and when required. You can do it multiple times, provided the total amount of top-up premiums doesn’t exceed a specified percentage of the total premium paid. The minimum top-up amount is also clearly specified by the insurer in the policy document.

However, if you are planning to increase the investment component of your ULIP plan seeking higher returns, there are three things you may need to note.

The top-up premium facility is available to disciplined policyholders only, who regularly pay the premiums on time.
A top-up plan assigns the premium allocation charge between 1% and 3%. You may get to save or reduce that cost by availing yourself of the top-up premium option.

Demystifying ULIP charges

A unit-linked insurance plan may help you financially safeguard your loved ones in your absence and grow your wealth at the same time. But there are certain costs you’ll have to incur to enjoy the fruits of this combined benefit. There are different types of charges that need to be borne by you in the course of the ULIP policy duration. Understanding these charges as well as knowing how and when they are payable may give you a clear picture. This may save you from misleading information and unnecessary confusions, letting you make a confident move in regard to your investment decisions.

The types of charges that are levied on a ULIP plan cater to the insurance and investment components of the policy, as well as to the policy as a whole. For example, the mortality charges are towards the insurance component and the death benefit, while the fund management or premium allocation charges are meant for the investment part. Again, charges toward the withdrawal of funds or surrendering the policy are applicable to the whole of the ULIP plan.

Before you choose to invest, it may be worth knowing the most crucial charges in detail.

Premium allocation charges

To enjoy the financial protection and wealth creation benefits of a ULIP plan, one may need to pay the premiums in a specified schedule and frequency..

To allocate a specific premium to a policyholder, the insurer needs to carry out some exercises like medical tests (if needed) and underwriting processes and has to pay the agent commission too. In turn, the policyholder needs to bear a charge covering these costs, which gets deducted from the premium you pay, and the remainder is used. Known as the premium allocation charge, this is usually a percentage of the premium amount that varies from company to company.

So, how does this charge work? To understand, let’s suppose the premium allocation charge in your ULIP policy is 15% and the premium payable is Rs 70,000. Hence, the premium allocation charge will be Rs 10,500. In turn, Rs (70,000-10,500) = Rs 59,500 is available to form the life cover and the investment component in your unit-linked insurance plan.

Mortality charges

The essential role of a ULIP plan is providing life insurance to the life assured. It is the life cover for the insured, a sum assured, which is payable to the nominee if the policyholder dies within the policy term. Thus, while the insured person may or may not survive the policy term, his/her family stays financially safeguarded from the unforeseen.

The insurance company levies a fee to provide the life cover to the life assured r, which is termed as the mortality charge and gets deducted from the fund value of your ULIP every month. The amount payable is calculated on the basis of your age and health condition and increases as you age. So, the older you get, the higher the mortality charge is owing to lesser life expectancy and a bigger probability of health risks.

Fund Management charges

The ULIP plan invests a part of your premium in different market-linked funds to earn returns and accumulate wealth for you. These funds are chosen depending on the policy tenure and how much risk you are willing to take to grow your money. But what happens afterwards is taken care of by professional fund managers.

A ULIP operates on various funds from which you may get to take your pick. The fund managers are the ones who manage these funds and look after their operations and performances so that you can earn optimal returns. For this service, the insurer levies fund management charges as a percentage of the fund value. Thus, the amount gets deducted from the fund value itself, and you receive the remaining portion.

While the charges can vary from fund to fund, the upper cap is 1.35% per annum, as per the guidelines set by the Insurance Regulatory Development Authority of India (IRDAI).

How ULIPs can be used to maximize tax benefits

Whether it is an insurance or an investment opportunity, it’s not just the end goal of financial protection or wealth creation that allures a taxpayer into purchasing it. A lot of financial products come with certain tax benefits that helps him/her save on taxes. These benefits are designed to offer exemptions from tax or deductions of the taxable income to the policyholder under the provisions of the Income Tax Act 1961. The Government too offers these provisions under various sections and subsections of the Act to inculcate and boost investment and saving habits of the citizens.

Like any other insurance product or investment instrument, the unit-linked insurance plan too has its own set of tax benefits. Being a hybrid product catering to insurance and investment needs, it has tax-related advantages available in both the components. Having a clarity of these advantages and how you can save on taxes through them may help in maximizing the tax benefits available.

Tax benefits on Premiums:

A combination of insurance and investment opportunity, ULIP plans require you to pay premiums in a chosen schedule and frequency. The premium you pay gets divided into two parts—one forms the life cover while the other gets invested into the funds you select to fetch returns from the market. But the gain doesn’t end here. As you pay premiums on a regular basis for your ULIP policy, it makes you eligible for a tax deduction through its insurance component. You can claim this deduction in your taxable income against annual premium payments up to Rs 1.5 lakhs under section 80C of the Income Tax Act 1961, just like other life insurance products.

However, it may be worthy to note here that this benefit can be availed only if you follow the old tax regime for your income tax return calculations.

Tax-free maturity amounts:

It’s the maturity benefit in a ULIP policy that sets it apart from other life insurance products. Unlike its traditional counterparts, the unit-linked insurance plan doesn’t have a fixed payout on maturity. Instead, the maturity amount here depends on the performance of the funds in which your ULIP policy has invested. If the policyholder survives the policy term, what he/she receives as the maturity benefit is the total fund value or the total returns earned by the policy. Naturally, the amount increases if the funds perform well.

While getting a large chunk of money at the end of your ULIP policy term seems quite lucrative, it could have invited higher taxes too. To save the policyholder from this trouble, ULIP plans have tax benefits available on maturity benefits too. Under section 10(10D) of the Income Tax Act 1961, the lumpsum maturity amount can be entirely tax-free. However, there are conditions to be fulfilled under the amendment through the Finance Act, 2021.

The amendment states that for the ULIP policies issued on or after 1st February 2021, the maturity benefit, including the bonus, will be tax-free:

If the annual premium paid for the ULIP policy does not exceed Rs 2.5 lakhs
If the total annual premium paid for multiple ULIP policies purchased doesn’t exceed Rs 2.5 lakhs.

To understand this better, let’s take the following example.

Mr X and Mr Y both purchase ULIP policies with Rs 35 lakhs and Rs 15 lakhs, respectively. Suppose both have a policy tenure of 10 years with annual premiums of Rs 3 lakhs and 1 lakh, respectively. Now at the end of the policy term, X receives Rs 48 lakhs and Y gets Rs 20 lakhs.

Now, since Y’s annual premium is less than Rs 2.5 lakhs, he’ll enjoy the maturity benefit without paying taxes subject to meeting Section 10(10D) condition. But X is liable to pay taxes for the maturity amount as he has paid annual premiums over the specified limit of Rs 2.5 lakhs.

Tax-free payout:

Any insurance or investment plan comes with a payout. While the death benefit and maturity amount are offered to the policyholders as a payout in case of an insurance plan, the returns are earned from the payout in an investment instrument. Being the combination of the two sides, a unit-linked insurance plan mixes the payout patterns. Here, like any other insurance plan, ULIP provides a death benefit to the nominee if the policyholder dies within the policy term. But the maturity payout comes from its investment component and is the total return or fund value earned.

But both being large and chunky payments, one might wonder if the payouts of ULIP are tax-free. Well, the answer is yes. When it comes to the death benefit, the payout is completely tax-free under section 10(10D) of the Income Tax Act 1961. The maturity benefit, however, doesn’t enjoy complete exemption from taxes. Introduced by the Finance Act 2021, the amendments to section 10(10D) require a ULIP to fulfil certain conditions for a tax-free maturity payout. For ULIP plans issued on or after 1st February 2021, the maturity amount is exempted from taxes only if the annual premium payment of a single ULIP policy or the aggregate annual premium payment from multiple ULIPs purchased by a person is less than or equal to Rs 2.5 lakhs [subject to Section 10(10D) conditions].

Understanding how you can save taxes through your ULIP plan is thus crucial. Only then can you maximise all the available benefits and save yourself from an unnecessarily huge income tax burden.

Common myths about ULIPs

For average Indians, investment is still a complicated decision as it involves a lot of market study, awareness, and constant monitoring. A lot of people often refrain from making investments because of the following reasons:

They find it difficult to understand the market and its functioning.
They aren’t aware of the nature, pattern, movements, and outcomes of the market and its instruments.
They lack the time to devote to research or monitoring the market.

Through these loopholes, the menace of misinformation and disinformation emerges, creating further misconceptions for many. As a result, myths are often created around investment instruments, barring people from availing themselves of their benefits.

ULIP is no exception either. While the insurance part is not much of a puzzling issue, the investment component of a ULIP policy has quite a few myths about it floating in the market. These misleading notions usually stem from misconceptions around the operations, targets, risks associated, pricing, returns, and liquidity of the unit-linked insurance plans.

Here’s a detailed look at some common myths about ULIP and the consequent fact-checking.

ULIPs are expensive :

Aarav and Banshi both are 27-year-olds. Aarav wants to purchase a life insurance policy. But Banshi is looking for both insurance and investment. He was considering ULIP, but someone told him that the premium allocation charges as well as the fund management charges are quite high in it. This made Banshi refrain from purchasing a ULIP, thinking he wouldn’t be able to afford it. Finally, both he and Aarav have bought traditional life insurance only.

Often people consider unit-linked insurance plans a costly investment option compared to other investment opportunities available in the market. This may have been rooted in the idea that ULIP, being specifically crafted to meet both the insurance and investment needs, has relatively higher fund management and premium allocation charges.

But the fact is a little different. These charges were allotted long back in 2008, and ULIP has significantly changed its structure and costs over the past two decades. Initially, the charges were indeed as high as 6-10%. But over time, low-cost ULIPs have been introduced to the market. As per the IRDAI regulations, annual charges in ULIPs have now come down to 3% for the first 10 years of the policy and to 2.25% for holding the investment over 10 years.
ULIPs are risky :

Manjari hails from a middle-class family where elders have always kept their money in traditional savings avenues or guaranteed income investment options. Now married and 15 years into her career, Manjari too wants to invest and grow her wealth and secure the future of her little one alongside. She read somewhere that the ULIP as a combination product has a potential of fetching good returns and wanted to try it out. But a friend told me ULIP earns big returns through investment in equities only, and there’s a high risk associated. Born to risk-averse parents, Manjari fears losing her hard-earned money. So, this made her rule out ULIP as an investment option.

But it’s not just Manjari and her friend. Many like them think ULIP invests the policyholder’s money in equities only. But the reality is, as a policyholder, you are allowed to choose the level of risk you are willing to take. If you are ready to invest in high-risk assets and earn bigger returns, ULIP investments are done in equities. But if you’re not so keen to take risks and okay with your money growing less, you may choose debt funds or balanced funds (a mix of debt funds and equities) to invest your money in. Additionally, there are fund switch and premium redirection facilities available, which allow you to change the allocation of your ULIP investments. This may help you start with all equities and shift to less risky funds with time if your lifestyle and evolving risk tolerance want you to play it safe.
ULIPs can’t be discontinued :

Michael is in two minds about whether to keep his money rolling in short-term investments or make an investment for the long term to earn returns through the power of compounding. A ULIP with its dual benefit of insurance and investment seemed alluring. But he remembered reading somewhere that once the policy is active, it can’t be discontinued until maturity. This has made Michael a little sceptical. What if he suddenly needs money on an emergency basis or the market takes a bad downturn, leading to a major loss of money?

Well, it's another misinformation that ULIPs can’t be discontinued. In reality, ULIPs have a lock-in period of 5 years only. Once the five-year span is completed, one can make a full or partial withdrawal of the money invested if needed, subject to the terms & conditions of the plan.
ULIPs have low returns :

Saadia was looking to invest her money into a financial instrument that would act both as insurance and an investment opportunity. A ULIP policy that couples insurance and investment instruments in a single product seemed a fitting option. But Saadia suddenly remembered her cousin earning only low returns from his ULIP plan and discarded her plan to buy one. Little did she know that the cousin was scared of losing his money and had allocated the ULIP investments into debt funds and other less risky funds only. Hence, the returns have also been low.

Misconceptions or misleading notions like this may prevent you from purchasing a ULIP as well. But it’s better to do some fact-checking. ULIPs allow you to choose your funds to invest in based on the level of risk you are willing to take. If you want to go aggressive with your investments instead of playing it safe, you may earn high returns by investing in equity funds over the long term. If you prefer less or no risk, ULIP plans allow you to keep your money in debt-orientated funds or balanced funds.
ULIPs are not tax efficient :

A friend advised Ranvijay to purchase a ULIP, as it may help him meet both his insurance and investment needs. Young and early in his career, this could help him secure his family and grow his wealth simultaneously, he thought. But Ranvijay wasn’t even ready to check the details. He seemed stuck in his idea that ULIPs are not tax-efficient.

Contrary to Ranvijay’s belief, unit-linked insurance plans are tax-efficient. If you have a ULIP policy, the following are its tax benefits:
- You can claim deductions for premium payments up to Rs 1.5 lakhs a year under section 80C of the Income Tax Act 1961 (incase of old tax regime).
- The death benefit payable to your family in the event of your death within the policy term is tax-free under section 10(10D).
- The maturity benefit is also tax-free, subject to conditions specified under section 10(10D).
- Health-related riders, if opted, entitle you to a deduction of up to Rs 25,000 a year under section 80D (incase of old tax regime).
You cannot easily switch between funds in ULIP :

Sakshi is a 28-year-old single and earning well with no liabilities, she is looking forward to investing in a ULIP plan and growing her wealth as much as she can through equity funds. A neighbour scared her, saying she might earn big by keeping money in risky assets like equities, but moving her funds to safer options like debt instruments if the market takes a dip will be very complicated. Sakshi is now in two minds about whether she would keep all her money in equities or choose debt or balanced funds instead.

A proper insight and correct information might help Sakshi here. In reality, she may easily shift to less risky funds if need be. ULIP plans come with a fund switch facility that allows policyholders to reallocate their existing funds from equity to debt and/or balanced funds and vice versa at any point in time, catering to evolving needs or risk appetites. In addition, ULIP offers a premium redirection facility that enables policyholders to change the investment allocation of future premiums if they feel the market is going to turn hostile in the coming days.
Market volatility affects ULIP life coverage :

Rohan has been married for 3 years and has a 2-year-old daughter. He has just bought himself a ULIP life insurance plan. Young and willing to take risks to accumulate wealth, he has already chosen equities to invest in. The other day, he just shared this news with a colleague who instantly rebuked him for this investment choice. According to the colleague, if the market gets suddenly volatile, he won’t just lose money; the life cover will also decrease in tandem. Rohan is now worried about whether his family would be as financially secure as he has perceived if anything happens to him suddenly.

Like Rohan’s colleague, many others believe that the sum assured in a ULIP policy can diminish if the market takes a dip when it has its investment in equities. But this is not true. No matter if the market is in the bull or bear phase, the life cover amount remains constant. If the life assured dies within the policy term, the nominee gets the sum assured or the higher of the sum assured and the total fund value as the death benefit.
ULIPs do not offer flexibility :

Diana and Imran are business partners, and their startup is just 3 years old. As a part of their financial plan, both have opted for ULIP policies, looking to fulfill insurance and investment needs with a single product. As their current earnings are not quite high, both have kept premiums low, and consequently, the life cover and the investment component are less too. Now both of them are a little confused if they would be able to increase the investment if they have extra earnings or surplus funds in the coming days. Imran faintly remembers someone telling him that ULIPs do not offer flexibility.

Here a little bit of research or a thorough reading of the policy features might have helped Imran and Diana. ULIP policies come with the flexibility of top-up premiums where one can invest surplus funds to earn more. This feature enables policyholders to top up the premiums multiple times throughout the policy term, subject to the terms and conditions of the plan. These premiums offer the same tax benefits as the regular premiums and can be utilised to increase the investment component. In some cases, life coverage also increases.

Role of ULIPs in wealth creation

These days’ people are increasingly looking out for products that would address more than one financial need. Financial instruments that cater to multiple needs may have garnered attention and popularity as they take away the hassles of purchasing and management of multiple products, saving time, energy, and loads of research thereby.

A unit-linked insurance plan may score in this aspect. A combination of an insurance and an investment opportunity, a ULIP policy caters to both the needs through a single premium. A part of it forms the life-cover for the insured while the remaining is invested in chosen funds to fetch returns. The latter part is thus the investment component of ULIP that helps you accumulate wealth over a long term.

As experts say, any investment in market-linked assets may benefit you more if you have a clarity of its functioning, features and benefits. If you are keen to purchase a ULIP policy in a bid to grow your wealth, understanding its role in wealth creation may help you make the most of your investment opportunity.

Flexible Investment Options:

As the professional journey begins, young and energetic income earners these days start considering investment options. The idea is to start early with the wealth creation and accumulate as much corpus as possible to beat inflation in future. But at the start of your career, salaries or earnings are often meagre making them invest less or choose lower premiums. But as they scale up the career path, incomes increase making the investors seek options where they can invest more to pump up the growth of wealth.

Again, as investments are subject to market risk, many might fear losing money and prefer staying away high risk-high gain options despite having no or less liabilities early in life. This results in lesser wealth accumulation through low-risk and risk-free assets, compared to the corpus that could have been accumulated by investing in risky assets.

Crafted to meet both these requirements, a unit-linked insurance plan comes with flexible investment options. Here, not only one gets the opportunity to invest surplus funds or additional incomes to earn bigger returns, mitigating potential losses from risky investments also becomes feasible.

So, how do these happen?

To address the concern of starting with lower premiums, ULIP offers to its disciplined customers a top-up premium facility. The policyholders who pay their premiums regularly on time are presented with an option of paying top-up or increased premiums multiple times throughout the policy tenure. So, even if one starts the journey with a low premium and low amount investment thereby, the ULIP plan lets him/her increase the premium if they have higher income or surplus funds later on. In turn, there is bigger amount available to invest which may fetch higher returns. The life cover of the policy may also get increased in accordance with increased, though there’s no compulsion. However, the tax benefits remain same for both the regular and top-up premiums.

Mitigating the market risks on the other hand may be feasible by the fund switch and premium redirection facilities of a ULIP plan. Young and in early stage of career, a policyholder may be in a position to aggressively allocate the ULIP investment entirely in equities in search of higher returns. However, with age his/her needs, priorities, and willingness to take risk may change. Also, even if there’s no such scenario, the market can take a bad shape leading to potential losses. In both the cases the fund switch and premium redirection facilities may help. A fund switch option in a ULIP policy allows reallocation of existing investment from equities to debt or balanced funds or vice versa, as and when needed. The premium redirection on the other hand offers the same facility for future premiums if one anticipates a change in the life stage or the market conditions in times to come.

Solving concerns, the flexible investment options may thus help you a better accumulation of wealth.

Understanding ULIP Terminologies

When you invest your hard-earned money in a financial product, be it insurance or an investment opportunity, knowing every detail about it becomes a necessity. And that list, the first and foremost, should be the terminology used. Unless you know and understand the terms used in a policy document, it can be pretty difficult to figure out how the product functions, how it may benefit you, or how the returns may shape up the corpus to match your needs.

Like any other insurance product, a ULIP policy also comes with its set of terminology. Knowing them well may save you from confusions or misconceptions and, in turn, help you reap the benefits to the fullest. Here’s the list:

Fund Value:

A fund value in ULIP is the total amount of returns that get generated from your investment on any given date and is payable as the maturity benefit at the end of the policy term. Some ULIPs also offer the higher of the sum assured and the fund value as the death benefit if the life assured dies within the policy term.

In unit-linked insurance plans, a part of the premium is invested in funds chosen on the basis of the policyholder’s risk appetite. These funds generate returns on the investment made to them, depending on their risk levels. For example, equities or related funds fetch high returns at high risk, while debt-orientated funds generate lower returns with lesser risk associated. Hence, the fund value at any given date is the sum total of the returns generated from each of the funds your money is invested in.

ULIP charges:

ULIP charges refer to different fees and charges levied by the insurer on your ULIP policy. Typically, these are the charges and fees payable for enjoying the services and benefits from the insurer towards your policy.

There are certain fees and charges associated with every financial product that are to be borne by those who invest in them. These charges are levied by the insurer as service fees for the operations of the product and the benefits offered. ULIP is no exception. The charges that are levied on this hybrid product combining insurance and investment get deducted from the premium you pay. In turn, the portions of the premium allocated to the insurance and investment component get reduced. The said ULIP charges are as follows:

Premium allocation charges:

When you purchase a ULIP plan, the premium is allocated depending on the age, health, family medical history, occupation, lifestyle, and habits, as well as the sum assured and the policy tenure chosen. To determine the premium, an insurance company may have to resort to underwriting processes and medical examinations. Covering the cost of these activities, a premium allocation charge is deducted from the premium, reducing the amount available for investment.

Policy administration charges:

After you purchase a ULIP policy, it’s the insurer who takes care of its administration so that the policy can operate smoothly and bring you the desired benefits. The policy administration charge is the fee for that service, payable to the insurance company. The charges might remain constant throughout the policy term or increase at a specified rate.

Switching charges:

If you are not satisfied with how the funds of your ULIP investment are performing, or there’s an anticipation of a bear market, there’s a way out provided by the insurer. Through the fund switch facility, you can alter and reallocate your existing investment in a separate mix of funds. Few switches are usually free, but beyond that they are chargeable, which is levied as the switching charge.

Surrender Charges:

The surrender or discontinuance charge is a fee applied to the unit fund of individual unit-linked insurance policies when a policyholder decides to surrender the policy or discontinue it, as outlined in the relevant regulations. This charge is usually calculated either as a percentage of the total fund value or as a percentage of the annualized premiums in the case of regular premium policies. Importantly, no discontinuance charge is imposed on top-up premiums. The charges applied at the time of discontinuance—whether based on the fund value, one annual premium, or a percentage of the single premium—must not exceed the maximum limits specified in the regulations.

Partial withdrawal

A partial withdrawal in ULIP is the scope to take back a portion of your investment made in the policy. This can be done according to specified rules set by the ULIP plan if you have an urgent monetary requirement.

There can be situations in your investment journey when you feel your funds are underperforming or you’re in dire need of money, but you don’t want to withdraw the entire amount either. In these cases, a partial withdrawal may help as you get the desired amount back, keeping the financial instrument running. However, the rules of partial withdrawals can vary from product to product and company to company.

Similar things can happen to your ULIP policy too. Since a part of the ULIP premium gets invested in market-linked funds to fetch returns, there can be situations of underperformance, losses, or market volatility. As per the rule, here you can withdraw any amount you like, but there should be sufficient funds remaining to pay for the charges in the policy. But the most crucial things to note here are:

No partial withdrawals are allowed before the 5-year lock-in period is over.
In the case of child policies, If the insured is a minor, you can’t make partial withdrawals until he/she turns 18.
If you have top-up premiums paid, the partial withdrawals are to be made from the top-up funds first.

Surrender value

A surrender value in a ULIP plan is the amount you get back if you surrender your policy before completion of your policy term. This amount and the corresponding charges or penalties, however, are governed by the set rules of your ULIP policy.

When you have an insurance policy or an investment instrument running, there might arise situations of emergency requirement of money. There might also be scenarios, especially in the case of investments, where you are incurring losses. In both cases, surrendering the policy or the investment instrument prematurely may seem a plausible solution. But the prime concern that needs to be focused on here is the surrender value, i.e., the amount of money you are likely to get back.

So, knowing the rules and the corresponding surrender values may guide you better about when the surrender can be profitable.

ULIP plans come with a lock-in period of 5 years. You can surrender the policy before or after the lock-in gets over, but with separate rules.

If you surrender the policy before the completion of the lock-in period, a discontinuation fee is payable while the policy gets shifted to a discontinuance policy (DP) fund. Here you get back the money only after the lock-in period is over. Till that point, the money keeps growing through guaranteed returns at an IRDAI-defined rate of 4%, and only the fund management charges are payable. Here, a crucial point is worth mentioning. For surrenders before the lock-in period, no tax benefits are available, and the deductions you’ve already claimed are nullified. So, the entire amount gets added to your taxable income.
If the surrender takes place after the lock-in period is over, no discontinuation charges are to be paid. Here you get back the total fund value available on the date along with accrued bonuses, if any, and this surrender value is tax-free.

So, depending on the urgency of surrender and the changes in surrender value due to timings of the surrender, you may be able to figure out which one’s profitable.

Survival and death benefits

Going by the names, the survival benefit in a ULIP plan is paid if the policyholder survives the policy term. Whereas, the death benefit is payable in the event of the policyholder’s death within the policy term. Both the survival and death benefits are subject to tax exemption under section 10(10D) of the Income Tax Act 1961.

People tend to buy life insurance to financially shield their loved ones from unforeseen struggles if they are suddenly not there. Catering to that need, life insurances are designed to pay the specified sum assured if the policyholder dies within the policy term. This payout is known as a death benefit. But what if a policyholder survives the policy term?

Unit-linked insurance policy is an insurance product with an investment component where a part of the premium forms the life cover while the rest is invested in funds chosen by the policyholder to fetch returns. The death benefit in ULIP is the sum assured, fixed at the time of the policy purchase, and it is paid to the nominee in the event of death of life assured within the policy term. Some ULIPs also pay higher of the specified sum assured and the fund value on date as the death benefit.

ULIP plans pay benefits even if the life assured survives the policy term, which are termed as survival benefits. In most cases, the survival benefit is the maturity benefit which is the total fund value generated by the policy at the end of the policy term and is payable when the policy matures. But in addition, some policies pay an extra benefit for crossing specified milestones within the policy term, typically upon the completion of the premium payment term. Categorically, this is known as a survival benefit, which is different from the maturity benefit of the ULIP plan.

Lock-in period

A lock-in period in a financial product like ULIP is a defined and fixed time frame within which no surrender or withdrawal is permissible without penalty payments or loss of benefits. The lock in period fosters long-term investment and financial growth through disciplined savings for the policyholder.

ULIP plans also have a defined lock-in period. Previously, the lock-in period in ULIP policies was 3 years. In 2010, as per the new regulations of IRDAI, the same has been extended to 5 years, during which only fund switches are permissible. Beyond this period, partial or complete withdrawals of the investment made are allowed, provided all the premium payments are up-to-date. However, one can surrender a ULIP policy, if needed, within the lock-in period, paying the surrender charges. But it will also take away the tax benefits of the policy, adding the surrender value to the policyholder’s taxable income. Additionally, the life cover will cease to exist. The surrender value will be payable post the lock in period, the investment fund value post deducting the discontinuation charges is transferred to a separate fund referred to as the Discontinued Policy (DP) fund, and the fund will remain the DP fund until the ULIP reaches the lock-in period.

Fund Management Charge

ULIP policies invest a part of your premium to purchase units of select funds based on your risk tolerance and earn returns from the market. As the name suggests, fund management charges in ULIP are the charges levied by the insurer for smooth management of your ULIP investment in chosen funds.

Ideally, for any investment made in market-linked funds, you may need to select funds cautiously, keep a regular track of their performances, review and monitor market situations and how they are affecting your funds, and analyse returns to maximise gains and avoid potential losses. In ULIP, the whole responsibility is taken by the insurer and, in turn, the professional fund managers who look after your investment. In exchange, the insurer levies a fund management charge, which is payable towards this service that lets you have a worry-free investment experience.

The fund management charges are deducted before the estimations of the Net Asset Value (NAV). Accordingly, they are usually charged on a daily basis and adjusted from NAV. The maximum permissible fund management charge by a ULIP policy other than discontinued policy fund is 135 basis points per annum.

Mortality charge

Mortality charge in ULIP is the amount deducted by the insurer to cover the insured for his/her untimely death within the policy term. It is basically the cost of providing the insurance to a policyholder.

As the life insurance is structured, against payment of premiums in a specified schedule and frequency, the insurance company is liable to pay a death benefit to the policyholder’s nominee upon his/her untimely demise within the policy term. To set the premiums and provide the insurance, the policyholder’s age, health, family medical history, occupation, lifestyle, and habits are taken into account to determine his/her life expectancy. With age, the policyholder’s life expectancy and health conditions are assumed to deteriorate, increasing the risk of paying death benefits for the insurance company. The mortality charges are deducted from premiums to cover this risk and the cost of keeping the life cover active as the policyholder ages.

Mortality charges, therefore, are expected to increase with the policyholder’s age and are calculated by the insurer on the basis of mortality tables.

Net Asset Value

The Net Asset Value in a ULIP is the per-unit value of your ULIP investment on any given date. As per the functioning of the policy, a portion of every premium you pay goes to the purchase of units from market-linked funds chosen as per your risk appetite. Here, the insurer pools in the investment components from the premiums paid by the policyholders to create unit-linked funds to fetch returns from the market. These funds behave in the pattern of mutual funds but are different in terms of rules, features, and benefits.

For any investment in market-linked funds, the returns earned by a specific fund are measured in terms of the net asset value (NAV). It is estimated the difference between the total value of assets held and the total liabilities is the net worth of the investment in that fund. So, if through a ULIP investment, you want to purchase a unit of that fund, the per-unit price is measured by the NAV per share. This is calculated as (total value of assets held – total liabilities) / total number of outstanding shares.

Similarly, the NAV, or the per-unit value of the ULIP investment, is calculated taking into account all the funds in which your money has been invested.

So, the NAV for the ULIP investment is calculated as:

NAV per unit = [(Value of Current Assets + Market Value of Investments Held) – (Value of Current Liabilities & Provisions)]/Total number of outstanding units on date

Investment allocation

Investment allocation in ULIP can be defined as the method in which the investment component of your policy is distributed among the funds you select to optimise the potential returns.

The ULIP plans are designed to allot a part of the premium paid to form the life cover under the insurance component of the policy. The remaining portion of the premiums paid is pooled in by the insurer and utilised to purchase units of financial assets chosen on the basis of your risk tolerance. For example, if you are open to taking high risks to earn higher returns, equities are chosen. Conversely, if you have a low-risk appetite, funds chosen are mostly the safer options, like debt or funds with less or no risk.

So, investment allocation in a ULIP plan differs on the basis of the amount of risk the policyholder is willing to take. Here’s a glance at the major categories:

Are you an aggressive investor looking forward to earn maximum possible returns risking losses? Then for you, the investment is allocated majorly in equities and the percentage of these assets in your portfolio can go up to 80%.
For the conservative or risk-averse investors, a higher allocation of almost 70% is made in debt funds and cash. Here, even if there’s market volatility, the risk of losing your hard-earned money is low while the returns may be less too.
For balanced investors, the investment allocation thrives on a balanced nature and distributes the money in chosen mixes of high and low-risk funds. Offering returns higher than conservative funds and lower than aggressive funds, these funds come at moderate risk.
Dynamic investors on the other hand can prefer constant reallocations of their money into different fund-mixes. Here the reallocations depend on fund performances and market situations, offering dynamic amounts of risk and rewards.

Single premium contract

A single premium contract in a ULIP policy refers to a plan where the full premium amount is paid at one go, and the policy remains active for the entire term thereby.

Life insurance premiums are payable in different schedules as per the policyholder’s affordability and preference. A unit-linked insurance plan is no exception. Here, you can choose to pay the full amount of premiums allocated in one shot and get the desired coverage and policy benefits active throughout the term. For those with an irregular income stream or a sudden surplus fund or windfall gain at hand, the single premium contract in ULIP may be a good choice to make. While it locks in the coverage and other benefits, the lump sum investment through this version of the ULIP may also be beneficial when the market is offering rising interest and returns.

However, one crucial point to note here is that the investment options or coverages remain constant in a single premium contract of ULIP. So, it may be worthy to analyse your financial situations well and choose the policy parameters accordingly if you decide to go for this option.

Regular pay contract

As reflected by the name, a regular pay contract of a ULIP plan is where you choose to pay the premiums on a regular schedule. The process in a preferred frequency of the policyholder continues till the policy term, ensuring coverage and policy benefits accordingly.

Under life insurance, premiums can be paid on a regular schedule of yearly, half-yearly, quarterly, or monthly frequency. Depending on the policyholder’s preference and affordability, the payment schedule and intervals are decided at the time of the policy purchase. In turn, missing payments in this regular schedule can lead to policy lapses as per the pre-specified rules of the insurer.

The regular premium payment may be an easier deal for the salaried individuals or those with a regular income stream. It lets them choose a frequency suited to their affordability and keep enjoying the coverage and benefits of the policy.

Maturity benefit

A maturity benefit in a ULIP policy is the amount you receive on completion of the policy term. Typically, this depends on the fund value of your ULIP investment.

A combination of insurance and investment opportunities, the ULIP policy is designed to split the premiums accordingly. A part of the premium is dedicated to the insurance component and goes to form the life cover and corresponding death benefit payable. The remaining portion of the premium is invested in funds selected based on the policyholder’s risk appetite to earn returns. This is the portion that takes care of the maturity benefit of the ULIP policy if the policyholder survives the policy term.

The investment component in ULIP plans is pooled in by the insurer to create a unit-linked fund. Here, the money invested by each policyholder is utilised to purchase units from funds chosen according to his/her risk tolerance. As per the ULIP policy plan, if the life assured survives the policy term, he/she is entitled to get a maturity benefit. Here, the amount payable is the total fund value as of the date of the policy expiry. Since the fund value depends on the performance of the funds selected by the policyholder, the maturity benefit also varies accordingly.

Like other life insurance policies, the maturity benefit of a ULIP plan is also entitled to tax benefits. As per the Finance Act 2021, and consequent amendments in Section 10(10D) of the Income Tax Act 1961, the ULIP maturity benefit is tax-free if the annual premium payment is less than or equal to Rs 2.5 lakhs [subject to Section 10(10D) conditions].

Death benefit

The death benefit in a ULIP policy is the life cover amount or the chosen sum assured payable to the policyholder’s kin if he/she dies within the policy term. The amount received as the death benefit is completely tax-free under the provisions of section 10(10D) of the Income Tax Act 1961.

A unit-linked insurance plan offers a life-cover for the life assured r to financially secure the family in his/her absence. The amount gets fixed at the time of the policy purchase and is paid as a sum assured to the nominee in the event of the unforeseen. But since ULIPs have an investment component too, policies can offer the higher of the sum assured and the total fund value on the date of death of the policyholder.

The lump sum payment as a death benefit may help the loved ones to sustain their existing lifestyle, pay off outstanding debts if any, and fund the long-term goals. Thus, it requires the life cover to be cautiously chosen and sufficient for the requirements.

To get the death benefit, the nominee must file a claim and submit the relevant documents. Thus, to ensure that the loved ones face no hassle in getting the claim settled, you may check the claim settlement and solvency ratio of the insurer beforehand.

Common Mistakes to Avoid when Investing in ULIPs

Investment decisions are crucial because you are putting your hard-earned money into it. While a wrong choice of a financial product or a plan can lead to losses, a casual approach to your investment practice may also be equally harmful.

A combination of life insurance and an investment which is subject to market risks, a unit-linked insurance plan is crafted to provide a financial shield to your loved ones and help in wealth creation simultaneously. Consequently, if there is a bear market and you have funds invested in high risk assets you could end up reducing the returns that you expected from it. .

So, how does one avoid such scenarios?

Here it may be helpful if you have an idea of the common mistakes people make in their ULIP investments. This can lead to a conscious and informed practice in your ULIP investment. In turn, you may avoid potential losses and maximise gains while your family stays protected with the insurance cover.

Following is a list of the most common errors while investing in ULIP plans. Checking them may make you aware of what you should not do in your ULIP investment.

Neglecting Life Coverage:

A ULIP plan is designed to take care of both your insurance and investment needs. Hence, a part of the premium paid goes to form the life cover, while the remaining is utilised to purchase units of funds of your choice, earn returns, and accumulate wealth. If one is inclined towards wealth creation, he/she may end up keeping a bigger proportion of the premium in the investment component. Experts say it’s a mistake to not have a sufficient life cover, as this would act as a financial security for your family in the event of your untimely death. Instead, it may be beneficial to identify the financial goals, estimate the corresponding fund requirement, and choose the life cover based on that. This may save your family from unforeseen struggles in your absence.

Missing premium payments:

Missing premium payments in life insurance policies are pretty common. Many people miss the due date and utilise the grace period of 15 days for monthly payment and 30 days for yearly, half-yearly and quarterly to make the payment. When the grace period is over, the policy gets lapsed. However, they can be revived as per the rule set by the insurer.

Even though ULIPs are an insurance product, rules are a bit different because of their investment component. Here, a portion of the premium paid goes to the life cover while the rest is invested in market-linked funds to fetch returns. Accordingly, while the death benefit payable is the sum assured or the higher of the life cover and the fund value on the date, the maturity benefit of the policy is the total fund value on the given day. So, if you miss premiums, it’s not just the insurance cover that is lost, but the fund value too may get reduced because of lesser investment.

Here, because of the missing premiums, the ULIP charges are deducted from the accumulated fund value to keep the investment active, pulling your earnings down. One crucial thing to note here is, in case of a policy lapse, if the premiums are paid for less than three years, the life cover will cease to be active immediately. However, if there have been regular premium payments for over three years, the life cover may continue till the revival of the policy as per rules with corresponding charges being deducted from the fund value.

Ignoring ULIP charges:

A ULIP investment plan comes with various charges payable towards costs incurred and services offered by the insurer. These are levied for various heads like premium allocation, fund management, mortality, policy administration, withdrawal, or surrender of the policy. Accordingly, the charges assigned are percentages of the premium paid or the fund value.

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ULIP – Unit Linked Insurance Plan

What are unit-linked insurance plans?

Child based ULIPs:

Whole life ULIPs:

Unit Linked Pension Plans:

Why are ULIPs popular?

Benefits behind the popularity

Flexible switch of funds:

Change in life cover with evolving needs:

Tax saving

How does the ULIP plan work?

ULIP Plans By Bajaj Allianz Life

Types of ULIP Plans

ULIP plans based on investment focus:

Equity ULIPs:

Debt ULIPs:

Balanced fund ULIPs:

ULIP plans based on premium structure

Regular pay vs. single premium ULIPs:

Guaranteed vs. non-guaranteed ULIPs:

ULIPs tailored for different life stages:

How to select the best ULIP plan in India

Defining financial goals:

Insurance coverage and objectives:

ULIP features and benefits:

Life cover and corresponding premium payments:

Charges involved related to mortality, premium allocation, fund and policy management, fund switches and withdrawals, policy surrender, or discontinuation:

Lock-in period and withdrawal details:

Tax benefits available:

Transparency of information shared by the insurer:

Claim settlement and solvency ratios:

Who should consider investing in ULIPs?

Those looking for long-term investment:

Those who need both insurance and investment:

Those seeking to save on taxes:

Those preferring low/medium/high investment risks:

ULIP Plan Buying Guide

Steps to purchase a ULIP plan online

Research and compare ULIP policies:

Life cover and policy term:

Benefits and riders available:

Charges:

Rules and regulations:

Exclusions and limitations:

Claim settlement and solvency ratio:

Evaluate your financial goals:

Understand fund options and allocation:

Check premium payment options:

Review policy features and benefits:

Fill in the application form:

Make the first premium payment:

Receive the policy confirmation and documents:

Benefits of ULIP

Maturity and Death Benefits: