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Exploring The Significant Features Of ULIPs

Published On Nov 06, 2021 10:00 AM By InsuranceDekho

Since the Union Budget of 2018, unit-linked insurance plans, or ULIPs as they are commonly known, have been in the headlines. Following Finance Minister Arun Jaitley's announcement of a 10% Long-Term Capital Gains Tax on gains of more than Rs 1 lakh on equities and equity-oriented mutual funds, life insurance companies have projected ULIPs as a good investment choice because the new tax will not apply to them.

Is the tax advantage, however, the only reason to invest in ULIPs? ULIPs offer market-linked returns, with a portion of your premium going toward life insurance. There are other benefits to using ULIPs as an investment choice that you should be aware of before making a decision.

Exploring The Significant Features Of ULIPs

Below are a few features of ULIP you must know:

1. The Ability To Invest According To Your Risk Appetite

With ULIPs, you can pick and choose funds according to your risk tolerance. Most ULIPs offer a variety of equity, debt, and balanced funds to pick from, as well as the ability to swap funds if your financial situation changes.

ULIPs are designed to be held for a long time.

After investing in ULIPs for a long time, say 15-20 years, the true benefits become apparent. Market volatility and fees will be reimbursed, and a larger portion of the premiums will be invested in ways that will allow you to enjoy the most benefits if you stay active for a longer length of time.

2. Pay A Single Payment And Receive All Of The ULIP's Advantages

Apart from a traditional premium ULIP, which requires premium payments at pre-determined intervals, a Single Premium ULIP only needs one payment of the purchase. You'll have access to the policy's benefits for the remainder of the term once you've paid the payment.

3. Double Benefits

ULIPs with the Liability Insurance monetary Instruments (I-I) option protect your family for the duration of the policy while also offering investment returns at maturity. A portion of the premium is invested in a mix of stocks and bonds, supporting participants in meeting their long-term financial goals.

4. Triple (E-E-E) Product

EEE (Exempt-Exempt-Exempt) option is available to consumers of ULIP funds. This means that clients can deduct taxes on their investments, earnings, and withdrawals. The premiums paid can be deducted from taxable income during the year, subject to the Income Tax Act's requirements. This means that ULIPs are tax-free investments.

5. Switch Facility

Switching allows you to adjust the ratio of your invested money, allowing you to shift your assets from equities to debt or hybrid funds depending on your risk tolerance at various life cycle stages. Furthermore, the risk appetite of the investor determines how much of the allotted funds should be put in shares and how much should be placed in debt instruments.

6. Lock-In Period

The majority of ULIPs have a five-year minimum lock-in duration. According to the policy's terms and conditions, this period can be extended. Even if one is locked in, one can choose to stop totally and not pay premiums to restart. In such circumstances, however, the accrued funds are transferred to a discontinuation fund, which all assures are required to maintain and repay to customers. The goal of a discontinuation fund is to keep money from expired policies until the lock-in period expires.


High expenses, minimal life insurance coverage, limited investment options, and poor performance are the main reasons why ULIPs are less popular among investors these days. However, there's always the chance that this notion is incorrect, so taking a deeper look at ULIPs can help you make an informed decision about whether or not to include them in your investing portfolio.

Also read - ULIPs: Understanding their working 

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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