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10 Most Frequently Asked Questions for ULIP

Updated On Sep 26, 2023

ULIP are well-known among investors as a wonderful investment tool for establishing investment habits and giving flexibility to investors.As a result, these ULIP plans do not cause concern among investors because they are flexible enough to accommodate your investment goals.

In this article, we have answered the 10 Most Frequently Asked Questions regarding a ULIP Plan.

10 Most Frequently Asked Questions for ULIP

Following are the most common queries which generally all of the investors have at the time of investing in a ULIP - 

Q.1 Do ULIP Plans involve A High Level Of  Risk?

The premium paid in unit-linked life insurance plans is susceptible to investment risks connected with capital markets, and the Unit Price of the units may rise or fall depending on the fund's performance and other factors influencing the capital market and the insured/policy. This is exactly why these plans promise higher returns.

Q.2 Is Partial Withdrawal Available In ULIP Plans?

ULIPs allow investors to take money out of their accounts to pay unexpected needs therby creating an emergency fund for the investor.The money can be withdrawn in lump sumps or instalments. However, in other situations, the policy requires that the life assured be at least 18 years old in order to make withdrawals.

Q.3 Is an Investor Allowed to Switch Funds In ULIP Plans?

Depending on your risk level and investing preferences, you can switch units between your investment funds. ULIPs are essentially integrated investment and insurance instruments with a variety of investment terms and conditions. This element of fund switching aids in the protection of your returns by shielding them from market changes and the resulting projected decline in fund performance. 

Q.4 What Are The Tax Benefits In ULIP Plans?

Under ULIP plans, you are eligible to tax benefits on the premium(s) paid under sections 80C and 10 of the Income Tax Act (10D).These plans allow investors to profit from increased returns based on current market conditions.

Q 5 What Are The Exclusions Under ULIP Plans?

Suicide Exclusion : The nominee or beneficiary of the policyholder is entitled to the single premium fund value and top up premium fund value, as available on the date of intimation of death, if the policyholder dies by suicide within 12 months of the policy's start date. 

Q.6 What Does The Top Up Feature Mean In ULIP Plans?

Over and above the regular premiums, one can make additional contributions as desired, provided the capability is stated in the Policy . This is known as the Top Up Feature in ULIP plans.

Q.7 What Is the Lock In Period Under These Plans?

Lock in period refers to a 5-year period beginning on the policy's commencement date during which the proceeds of the policy cannot be paid to the policyholder until the policyholder dies or the policy's covered events occur. The benefit of partial withdrawal is not permitted under this period.

Q.8  Are ULIP Plans Suitable For Long Term Investment?

ULIPs are a popular long-term investment option among investors. In comparison to their contemporaries, these plans' net returns remain strong. Under the right circumstances, these policies work effectively and provide good returns over time.

Q.9 How much flexibility do ULIPs offer?

Following is the range of flexibility provided under ULIP plans: 

1. Switching: At any time, you can transfer your accumulated cash from one fund to another.

2. Premium Redirection: You can direct your future premium payments to various funds depending on your needs. The first four premium redirections are free in any policy year. Free premium redirections that have not been used cannot be carried forward.

Q.10  What happens if the premiums are discontinued in ULIPs?

In the event that an investor fails to make a timely payment, they have the choice of selecting one of the following options.

  1. Reinvigorate the policy
  2. Withdraw the policy entirely, with no risk coverage.

If the policyholder does not exercise the foregoing alternatives within 30 days, the policy will be ruled void and the insurance will no longer provide risk coverage.

In Case Of Discontinuance within three years 

The insurance cover will be terminated immediately if all premiums have not been paid for at least three years from the date of inception. If the policy is not revived within the allowed term, surrender value is paid at the end of the third policy anniversary or at the conclusion of the allowed revival period, whichever comes first.

In Case Of Discontinuance after three years 

The contract will be cancelled by paying the surrender value at the conclusion of the revive period. If the policyholder requests it, the insurer may offer to maintain the insurance coverage by charging appropriate fees until the fund value reaches at least one full year's premium. 

Take Away 

It's easy to get swayed by the abundance of information available on the internet. As a result, it's critical to grasp the specific elements of your insurance plan before making a decision. The above article will help you in that process.

Also read - Need For ULIPs During Coronavirus Outbreak

Things To Consider Before You Purchase An ULIP

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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