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Who Should Purchase A ULIP

Published On Jan 16, 2022, Updated On Jan 17, 2022

A "unit Linked Insurance Plan" (ULIP) is an insurance coverage associated with a specific property. The term "unit Linked" lets the reader know that a ULIP's assets are invested in the company or the bond market, and are therefore linked to the financial markets. NAV units are issued by ULIPs in the very same way as mutual funds are created. The name's "Insurance Plan" confidence especially that one's relatives will be fully assured in the case of unexpected death. It's incredible how well everything works altogether.

Who Should Purchase A ULIP

Who Should Purchase A ULIP

Below are a few aspects of a ULIP you must know:

1. Diversified Fund Options

Most investing alternatives allow you to pick between equity, debt, or balanced funds; however, ULIPs allow you to invest in all three types of funds. According to market conditions and your needs, you get to determine how much of your money should go into equity, debt, and balanced funds. Even if you just invest in one fund, you can move your money around to take advantage of possibilities. Most insurance companies offer free switchovers once a year.

2. Life Cover

In addition to the benefits listed above, ULIPs provide life insurance. The nominee receives life insurance and the current fund value as a lump-sum payoff if the policyholder dies. You can also add a personal accident rider to your policy to get disability coverage. In addition, if you die in an accident, your family will receive twice the amount guaranteed. In this approach, ULIPs provide you with two benefits: life insurance and wealth building.

3. Tax Planning

By investing in ULIPs on a monthly basis, you can easily meet your tax-saving goals. All you have to do is invest in a ULIP on a monthly basis to qualify for tax benefits under Section 80C and 10(10D) of the Income Tax Act.

Investing in a ULIP is the simplest way to take advantage of the triple benefits of high returns, life insurance, and tax advantages, so get started now!

4. ULIP Charges

Premium allocation expense and policy administration expense were recently removed from ULIP charges. Then there's a fund management charge, which is identical to the expense ratio of mutual funds but is capped at 1.35 percent by IRDAI norms. The third expense is fund switching fees, which must be paid when switching from one ULIP fund to another. In some companies, this is normally free for the first 1-2 switches, after which it is charged. There are also premium redirection charges, policy surrender charges, and discontinuation charges to consider. The mortality charge, though, is the most absurd and hardest.

5. Lock-In Period

A five-year lock-in term applies to all ULIP investments. If a person needs to remove their ULIP money before the end of the five-year period, the fund is classified as a Discontinued Fund, and any returns on that amount are penalized. The person receives only about 4% returns, which is comparable to a savings account. This is the cost of exiting a ULIP fund before the lock-in term expires.

Agents that sell policies with a lock-in period earn a 25-30% commission. It's a series of commissions that start with the agent and work their way up to his target area manager and beyond. As a result, approximately 30% of the first premium is spent on sustaining these extra expenses before it is invested.

6. Tax-Free ULIP

ULIPs may appear to be tax-free under Section 80C since they fall into the exempt, exempt, exempt category, but with already higher charges and lesser returns, getting further tax deductions is unimaginable. It is preferable to earn 15% returns with tax rather than generating 8% returns tax-free. In Section 80C Income Tax Deductions, you can learn more about tax-free investments.


The investor in ULIPs invests his money every quarter or half year. An additional advantage of ULIPs is that an investor can make a one-time investment in the ULIP to profit from stock market chances or to save money for the future if they have an investible excess in a given year.

Also read- 5 Reasons Why You Should Invest In ULIPs

What Is The Difference Between ULIP And ELSS

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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