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Understanding The Basics Of ULIP Investments

Updated On Sep 26, 2023

A linked insurance plan is referred to as a ULIP. The investment in a linked insurance plan is tied to the market. A portion of the payment is invested by the insurance company in traditional life insurance, but the advantages are not experienced by the policyholder because it is not tied to the market. The savings portion of the premium is invested in funds in a linked plan, and the policyholder has access to the assets and can monitor their performance. ULIPs have a sum assured, which means they will insure the policyholder for a specific amount, exactly like regular life insurance. It will invest in various funds at the same time. The maturity and death rewards will fluctuate depending on the policy's terms.

Like other types of life insurance, ULIP plan is a long-term investment. Over time, the premiums are paid to develop a corpus, which aids in meeting target fund requirements. Many people start ULIPs with various end goals in mind, such as retirement, schooling, or a child's wedding. These plans give insurance to assist the family in the event of a loss of income, and the maturity value of the fund assists with the goal's actual cost. Partially withdrawing funds is also an option with ULIPs. There is a certain percentage of cash that can be withdrawn, depending on the insurance company. Before the lock-in period expires, no partial withdrawals are available.

Understanding The Basics Of ULIP Investments

Here are a few basic things to understand about ULIP investments:

1. Insurance

The life insurance coverage that a ULIP provides is one of its most essential characteristics. By acquiring a ULIP, one can protect their family from unanticipated tragedies and ensure that they are well cared for in the event that the assured individual passes away prematurely.

2. Charges Are Dispersed Evenly

The rates imposed on ULIP schemes, according to IRDAI, are evenly spread during the 5-year lock-in period to help assurers avoid exorbitant upfront costs.

3. Premiums That Are Paid At The Same Level Each Year

A uniform or level premium payment structure must apply to all periodic premium or limited-term premium payments made under a ULIP. Any additional premium payments are treated as one premium when providing life insurance coverage.

4. Budgetary Goals

ULIPs also have the ability to generate wealth by investing in both equities and debt assets. ULIPs can be purchased for a long time by investors. They can choose from debt, equity, or a combination of the three, depending on their needs, risk profile, and investment time horizon. Because ULIPs have a mandated 5-year lock-in period and insurance is a long-term product, in any case, ULIP investments can benefit from compounding and deliver significant profits for the investor.

5. Benefits From Taxation

Section 80C of the Income Tax Act of 1961 allows you to claim a tax credit for ULIP premiums. A maximum deduction of Rs 1,50,000 is allowed under this rule. The policy's returns are tax-free upon maturity, thanks to Section 10 of the Internal Revenue Code (10D).

In addition to the three primary benefits outlined above, ULIPs are easy to invest in and allow investors to choose between investment programs. Investors' ability to take risks varies depending on their circumstances. By allowing you to convert between debt and equity at no additional cost, ULIPs ensure that as an investor, you may create an optimal and accurate investment portfolio.


The fact that ULIPs have lock-in time is vital to remember. Partially withdrawing funds is not allowed during the lock-in period. While ULIPs can be surrendered during the lock-in term, the monies will not be paid out until the lock-in period is over. To cover the insurance company's costs, the monies will be split up. There will be no charges for any surrenders made after the lock-in period has ended. The policyholder will receive the entire fund value from the insurance firm.

Also read - Things You Need to know About ULIP Before Investing in it

5 ULIP Charges You Must Know About

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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