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

Published On Nov 26, 2021

When making a financial investment, a Unit Linked Investment Plan (ULIP) is frequently presented as a choice. However, what exactly is a ULIP? What makes it unique among financial products? What is the insurance coverage? Let's see what happens.

In reality, a ULIP is a hybrid of both an insurance policy and an investment plan. If we had to give you a more technical and organized definition of ULIP, it would be as follows – A Unit-Linked Insurance Plan (ULIP) is a hybrid of insurance and investment in which a portion of the premium is used to secure life insurance. So, what happens to the remaining premium?

So, how does the other half of this plan work? You can tailor your investment mix to your specific needs and risk tolerance.

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

Below are a few reasons why one must consider investing in a ULIP:

1. Do You Have The Option To Surrender Your ULIP?

What if you have an emergency and need to surrender your ULIP? Is it possible to surrender a ULIP? Yes. Unit-linked insurance plans can be surrendered early; however, there may be costs involved. Depending on the scheme, surrender charges are calculated as a percentage of the fund value. If the ULIP is surrendered within the first three years, the insurance coverage will be terminated immediately. Another thing to keep in mind is that even though the policy has a surrender value before the third policy year, it is only payable after the third policy year. However, there may be a few financial institutions that allow component surrender or partial detachment after 3-5 years at no added charge and with no reduction in insurance coverage.

2. Lock-In Period

The immediate lock-in period for ULIPs was three years. IRDAI, in 2010, extended the lock-in period from three to five years. However, you must understand that, while the lock-in period for ULIP is 5 years, it is a lengthy asset and you will not glean substantial benefits if you do not have the time or the patience for at least 10-15 years.

3. Is A ULIP The Same As A Mutual Fund?

Many people get ULIPs mixed up with mutual funds. You must understand that, while ULIPs are similar to mutual funds in some ways, they are not the same. ULIPs combine insurance and investment, whereas mutual funds are solely for investment. There is, however, one similarity between ULIPs and mutual funds. Each policyholder's Unit-Linked Insurance Plan, like mutual funds, contains a set number of fund units, each with a daily declared net asset value (NAV). The net asset value (NAV) is the value used to calculate the net rate of return on ULIPs. The NAV of each ULIP varies according to market conditions and fund performance.

4. So, What Exactly Is The Distinction?

There are several differences between a ULIP and a mutual fund. One significant difference between ULIP and mutual funds is that the expected rewards on ULIP are low because the perceived risk is low, and there is an assured sum value that will be paid in the event of the assured's death, regardless of whether the funds make money or not. Mutual funds, on the other hand, do not fall into this category.

5. For The Risk-Takers

ULIPs include a variety of risk factors. It provides a total of seven funds with risk levels ranging from zero to one hundred percent. Choose ULIP if you have a high-risk tolerance. After all, high ROI is frequently associated with high risk.


Initially, you select a ULIP that matches your risk profile and financial objectives. In exchange, you pay a premium to the insurance provider. The insurance company saves a portion of your premium and invests the remainder in a variety of funds. The investment is based on your risk tolerance. If you have a high-risk tolerance, you can invest in equity funds; if you don't want to take too much risk, you can put your money in a debt fund. Balanced funds can also be used to benefit from high returns while avoiding high risks. Because these investments are made to assist you in achieving your financial objectives, you can select funds based on your risk tolerance.

You may also like to read - How To Buy ULIPs Online 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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