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Understanding Basics Of ULIP Investments

Published On Oct 04, 2021

ULIPs, like other types of life insurance, are a long-term investment. Over time, the premiums are paid to establish a corpus, which aids in meeting finance requirements for goals. Many people begin ULIPs with various end goals in mind, including retirement, schooling, or a child's wedding. These plans give insurance coverage to assist the family in the event of a loss of income, and the fund's maturity value contributes to the goal's actual cost. 

One thing to keep in mind with ULIPs is that they have a lock-in period. The policy does not allow partial withdrawals during the lock-in period. While ULIPs can be relinquished during the lock-in term, the monies will not be paid out until the lock-in period ends. The monies will be divided to cover the insurance company's costs. Surrenders made after the lock-in time has ended will not be charged. The insurance firm will pay the policyholder the full amount of the fund.

Understanding Basics Of ULIP Investments

Given below are a few of the basics you should know regarding ULIP investments:

1. Insurance

One of the most important features of a ULIP is the life insurance coverage it provides. By purchasing a ULIP, one can safeguard their family from unforeseen disasters and ensure that they are well cared for in the event of the assured individual's untimely death.

2. Financial Objectives

Another significant advantage of ULIPs is their capacity to produce wealth through investments in both equities and debt assets. Investors can choose to invest in ULIPs for long-term purposes. Depending on their needs, risk profile, and investment time horizon, they can choose from debt, equity, or a combination of the three. Because ULIPs have a 5-year mandatory lock-in period and insurance is a long-term product, in any case, investments in ULIPs can benefit from compounding and yield considerable profits for the investor.

3. Tax Benefits

The premiums paid for a ULIP are eligible for a tax credit under Section 80C of the Income Tax Act of 1961. This provision allows for a maximum deduction of Rs 1,50,000. Section 10 of the Internal Revenue Code exempts the policy's returns from income tax upon maturity (10D).

ULIPs are simple to invest in and let investors select between investment plans, in addition to the three key advantages listed above. As the conditions of investors change, so does their ability to take risks. ULIPs ensure that as an investor, you may design an optimal investment portfolio that is accurate by allowing you to convert between debt and equity at no additional expense.

4. Even Distribution Of Charges 

According to IRDAI, the rates imposed on ULIP schemes are evenly spread during the 5-year lock-in term in order to help insurers avoid excessive upfront expenses.

5. Level Paying Premiums  

All periodic premium or limited-term premium payments under a ULIP must follow a uniform or level premium payment structure. To offer life insurance coverage, any additional premium payments are treated as a single premium.


The performance of the funds is transparent with ULIPs. They have an advantage over standard life insurance plans in this area. It's impossible to tell how well the funds are performing in a non-linked life insurance policy, and fund performance isn't the goal of a standard life insurance policy. ULIPs, on the other hand, provide transparency and flexibility. Partially withdrawing funds is also possible with ULIPs. There is a certain percentage of cash that can be withdrawn depending on the insurance company. Before the end of the lock-in period, no partial withdrawal is available.

You may also like to read - What Are The Difference Bteween ULIP and SIP?

Avantages and Limitations Of ULIPs

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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