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What Is a ULIP? Is It A Good Idea To Invest In a ULIP?

Published On Dec 02, 2021

A ULIP is split into two sections. The first component goes toward the life insurance premium. The remaining money is invested in either equities or debt funds to earn financial rewards.

You can change the percentage of your ULIP investments in favor of your insurance cover or into your investment portfolio depending on your future financial goals. In either case, you will undoubtedly reap significant cash rewards.

An example will help you understand how ULIPs work. 

Assume you've established a ULIP and are paying a premium of INR 50,000. For this premium amount, your insurance provider will deduct a premium allocation charge. The premium allocation charges are the costs of initial expenses such as commission and other selling costs.

What Is ULIP? Is It A Good Idea To Invest In An ULIP?

Here is everything you must know about ULIP and why you must invest in it:

  • A Single Package with Dual Benefits

ULIP is the only financial tool in India that provides both investment and life insurance coverage through a single transaction. As a result, you won't need to purchase separate insurance and investment plans to safeguard your future. This saves you a lot of money on your premiums and allows you to better manage your budget.

  • Tax Benefits

ULIP purchases are tax-deductible under Section 80 C of the Tax Code. An investor can collect up to INR.1,50,000 per year on his ULIP assets. Similarly, the profits you obtain at the completion of your ULIP are tax-free under Section 10D of the Income Tax Act. Furthermore, the appropriate support by the candidate upon the policyholder's demise is tax-free under Section 10 (10D) of the Income Tax Act.

  • Investing Options with Flexibility

ULIPs provide a variety of investing possibilities. This adaptability is manifested in the form of-

Fund Switch: Depending on your risk tolerance, you can switch your investment between different funds such as equity, debt, or balanced funds. If you wish to take a higher risk with your investments, you can put more money into equities funds. You can, however, convert your assets into debt or balanced funds at any time if you feel the need to reduce your risks.

Top-Up Options: Top-up options allow you to increase the amount of money you put into your existing savings account.

Premium redirection: Premium redirection allows you to divert future premiums into various funds.

  • Sum Assured

Once we purchase a ULIP, we are guaranteeing a set sum to the candidate in the case of the policyholder's unexpected death during the policy term. The'sum assured' is a which was before, tax-free figure.

  • Withdrawal Facility During the Lock-In Period

You are usually not allowed to make partial withdrawals during the lock-in period if you make any investments. ULIP benefits, on the other hand, will allow you to make withdrawals during the lock-in period. When you make such withdrawals during the lock-in period, however, certain fees and deductions are deducted from the total.

  • Possibility of Higher Returns

In comparison to other investment options, ULIP returns have a great potential for maximum financial rewards. Because of the flexibility given by equity and debt funds, these high results can be attained. Similarly, ULIPs allow you to earn prizes and bonuses for staying invested.' Bonuses are offered by insurance companies in the form of wealth boosters or loyalty add-ons.

  • Performance of Funds

The market is tied to ULIP investments. As a result, market movements may affect the funds in which you invest (equity, balanced, or debt). As a result, compare the past performance of these funds to their relevant market benchmarks before making your purchase. Analyzing the fund's performance might also aid in determining your ULIP investment's risk appetite.

  • Charges Involved

You must pay premium allocation charges, policy administration fees, fund management fees, mortality charges, and surrender/switch expenses when you purchase a ULIP. Before you invest, make sure you thoroughly analyze these fees.


ULIPs are also a pretty good investment for those planning a family or approaching retirement age. Family members can get long-term coverage through ULIP. In the case of a policyholder's untimely or unexpected death during the policyholder's ULIP tenure, an amount assured is paid to the policyholder's nominee as a form of future financial protection. Long-term benefits are available with ULIPs. The average lock-in period for a ULIP is 5 to 7 years. Money invested in equities or debt funds has had ample time to rise dramatically. As a result, you should begin using ULIPs as soon as possible.

Also read: How To Buy ULIPs Online?

Difference between ULIPs and Mutual Funds

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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