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How Secure Is It To Invest In A ULIP?

Published On Sep 10, 2021 1:00 PM By InsuranceDekho

ULIP plans have a five-year lock-in period and hence it's a good idea to keep an eye on them for at least that long. Last year, mutual funds were reclassified in accordance with market regulator-issued regulations. According to industry experts, this had no impact on ULIPS because the product is regulated by India's Insurance Regulatory Development Authority (IRDAI). Regardless of the amount invested, the insurance regulator has already established a cap on charges and a net reduction in yield for investors, ensuring that ULIP returns are unaffected. 

So, before you invest, think about your financial goals, your portfolio, and your risk tolerance. Because there is a five-year lock-in period, it's a good idea to assess your own financial capabilities and ambitions, as the insurance provider will penalize you if you cancel the plan before it expires. As a result, ULIPS are only suitable for long-term investments. As a result, because the risk involved with ULIPS is significant, it is recommended that you analyze your risk appetite and financial portfolio.

How Secure Is It To Invest In Unit-Linked Insurance Plans (ULIPs)?

The five advantages of ULIP plans that make them a safe investment option are listed below:

  • Potentially Higher Profits

Because of their equity advantage, ULIPs can provide better returns than traditional insurance plans. The premium you pay for a ULIP policy is invested in a variety of funds across several asset classes. They have historically provided double-digit returns while simultaneously providing tax benefits. The maturity amount, on the other hand, is determined by how the equity market performs over the course of the term. 

Endowment plans, on the other hand, provide a lump sum payment at the conclusion of the policy period, but they protect the capital and do not provide inflation-beating returns. The best feature is that the maturity amount is tax-free, making ULIPS a superior investment option than other options. Tax-free benefits are available with FDs as well, although there is a lock-in period. However, the provided returns are added to your income and are taxable according to your tax rate.

  • Dual Benefits

ULIPs are an excellent long-term investment instrument since they offer a tax exemption of up to Rs 1.5 lakh under Section 80C of the Income-Tax Act. Historically, it has offered investors under the age of 45 a minimum sum insured equal to ten times the annual premium. Furthermore, in comparison to when they were first established, the New IRDAI rules have made Unite Linked Investment Plans far more investor-friendly. Other costs such as fund management fees, premium allocation fees, administration fees, and surrender fees have also been cut.

  • First-time Investors

As investors shift away from traditional investment programs and towards market-linked investment products and insurance policies, With the shift in investment patterns, it makes sense for first-time investors to purchase a ULIP policy, which combines investment and insurance into one policy.


  • Period Of Confinement

Because ULIPs have a five-year lock-in period, they assist investors to develop investment discipline. Because it is a long-term insurance contract, investing in a single ULIP coverage can be advantageous. You only have to buy it once, and you can take advantage of the tax benefits every year until the policy expires (premium term). The lock-in period for ULIPS is calculated from the date the policy is published. The premium for ULIP coverage can be paid monthly or annually.

  • Flexibility

ULIPs are popular among investors because they allow them to swap between funds at any time during the policy's duration. Depending on your goals and risk tolerance, you can choose among equities, growth, balanced, and income funds. In most cases, four free switches are allowed every year. ULIPs, unlike stocks, do not need you to track the firms in which the fund invests. Simply choose a ULIP policy; you can change your fund allocation at any moment throughout the policy's term and keep it until maturity to reap long-term rewards.


As you can see, a ULIP policy can help you increase your wealth and accomplish your long-term financial goals by diversifying your investments. ULIP investments are perfect for those who want to make a 5-year commitment and benefit from the equity advantage. ULIPS is a safe investment option since they allow you to stay involved.

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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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