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How Safe is it to Invest in ULIPs?

Updated On Jul 29, 2021

A ULIP provides life insurance coverage as well as an opportunity to make a secured long term investment in bonds, share, debt and mutual funds to the policyholder. As a matter of fact they involve risk in getting lump sum returns as the capital market is influenced by high fluctuations. The ULIPs experienced a recognizable development after 2010.  Though they were not very appreciable for investment until 2010, later the terms and conditions of the policy were improved by the Insurance Regulatory Development Authority of India (IRDAI), which made them attractive for a good number of people who are interested in long term investment in the capital market. 

How Secure is it to Invest in ULIP?

Investing in ULIP is considered to be safe in many aspects. They ensure good returns to the investors. Here are some points that justify the security of investment in ULIP.

1. Investment Options in ULIPs

When you opt for investing in ULIPs, some portion of the premium amount is invested in equity or debt funds as per your choice. You can choose among small-cap, mid-cap, large-cap or multi-cap funds to invest your units.This choice depends majorly on your risk appetite. If you are a person with a high risk appetite, you can choose to invest in equity funds. The equity shareholders are paid dividend only after paying the debenture holders and preference share holders. But they enjoy the surplus dividend, if the market has profits for it. Therefore, they give you a good rate of returns but at a higher risk. So if you are young and are interested in taking risks, you can invest in the equity funds. In the alternative case, if you are a risk averse person,you can choose to invest in debt funds.

2. Switching Option Between Debt and Equity

The ULIP Policy also offers a fund switch option, using which you can transfer your units from one fund to another, multiple  times,within the same plan. The insurance company may charge you a little for availing this option. This helps you to take advantage of the prevailing market conditions. This improves your returns and helps in increasing your profits.

3. Withdrawal of Funds Option Under ULIPs

The ULIP policy has a lock-in period of 5 years which means that you cannot withdraw or alter your funds during these years. Therefore if you wish to have immediate liquidity for your funds, ULIPs don't actually cater your needs. However after the lock-in period is over, you can withdraw your funds wholly or partially. The insurance company charges you for performing this activity. Are you worried about your income after retirement? ULIPs can help you with this. The ULIP pension plan is a great avenue to source income after retirement as it allows you to withdraw your money monthly, quarterly,bi-annually or annually. 

4. Tax Benefits of ULIPs

The premium paid towards the ULIP policy is exempted from the payment of tax, under Section 80C of the Income Tax Act, 1961. Under Section 10D of the same act, the death benefit offered by the ULIP plan is made tax- free.

5. Investor Friendly Aspect of ULIPs

Gradually with the passage of time,the new  IRDAI guidelines made investment in ULIPs investor friendly. Costs such as fund management charges, premium allocation charges, administration charges, and surrender charges are reduced considerably. Moreover you need not keep a constant track on your funds after investing then in ULIP.


One shouldn't be in a hurry to take up a ULIP plan. You need to check your ULIP investment plan matches with your long term goals. Factors such as rate of return, maturity period and lock-in period must be considered before taking up the plan. 

The ULIPs not only pave your growth in the capital market but also ensure financial protection to your family in your absence. They pay a lump sum amount to your nominees as a coverage to your life. Therefore ULIPs are a good option of investment for those people with risk appetite and who choose to earn good returns by taking advantage of the invested funds.

You may also like to read - Which is the best Unit Linked insurance plan in India in 2021?

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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