Unit Linked Insurance Plan (ULIP): Benefits, Features, How it Works

Unit Linked Insurance Plan:- ULIPs or we can say Unit Linked Insurance Plans integrate investment and insurance. Life insurance is paid for with part of the premiums, and the remaining amount is invested in different funds. They provide flexibility, tax advantages, and a special method for reaching financial objectives. A portion of the premium you pay for a ULIP plan is allocated to purchasing life insurance, with the remaining portion being invested in the large cap, mid cap, small cap, and flexible cap funds of your choice. Because of this, the ULIP plan is a special kind of investment that can assist you in reaching your financial objectives and safeguard your loved ones in the event of an unexpected catastrophe. You have the authority to choose from a variety of options, including debt, equity, and combinations of the two.

Unit Linked Insurance Plan 2024

Unit Linked Insurance Plan 2024

An investment instrument that aids in the investor’s 80C deduction claim is a Unit Link Insurance Plan (ULIP). The two primary foundations of wealth management are possessing an

  • Insurance (medical and term both) whereas
  • Investing in equities.

ULIP is a good choice if you want a combination of these two financial planning features. A tiny amount of your ULIP investment goes towards life insurance, with the other funds going towards stocks. Let’s take a closer look at ULIPs.

Post Office PPF Account

Objective of Unit Linked Insurance Plan

The objective is to create wealth in addition to providing life insurance. The insurance firm allocates a portion of your investment to life insurance and the remaining amount to a fund that aligns with your long-term objectives and is based on debt, equity, or both. These objectives can include saving for your children’s education, retirement, or another significant event.     

Best ULIP Plans in India 2024

Some of India’s top ULIP plans are listed below.

Plan NamesEntry AgeMinimum Investment Amount (Annually)10 Year Returns*
Bajaj Allianz Invest Protect Goal18 years₹50,40021.4%
TATA AIA Smart Sampoorna Raksha18 years₹20,67219.2%
HDFC Life Sampoorn Nivesh18 years₹12,00027.5%
HDFC Life Click2Invest18 years₹12,50027.5%
TATA AIA Fortune Pro18 years₹12,00021.2%
Bajaj Allianz Goal Assure II18 years₹36,00023.3%
Bajaj Allianz Smart Wealth Goal III18 years₹24,00023.2%
Aditya Birla Wealth Aspire Plan18 years₹40,00019.3%
PNB Metlife Mera Wealth Plan18 years₹12,00018.3%
Bharti AXA Wealth Maximizer18 years₹24,00017.1%
Kotak Life E-Invest18 years₹12,00016%
Edelweiss Tokio Wealth Secure+0 years₹12,00015%
Future Generali Big Dream18 years₹18,00014.3%
LIC SIIP Plan18 years₹30,00016.9% (RSI)
SBI Life eWealth Insurance5 years₹24,00016.1% (RSI)
ICICI Pru Lifetime Classic0 years₹30,00021.6%
Aviva i-Growth18 years₹48,00013.8%

Lock-in Period for a ULIP

There is a five-year lock-in period for ULIP insurance plans. But as ULIPs are long-term investments, combined with mutual funds and life insurance, they ought to be held for at least 15 years.

Post Office Monthly Income Scheme

Potential Hazards Connected to ULIPS

The kind of fund linked to ULIP plans will determine the risk involved. 

For instance, a balanced fund distributes the risk across its debt and equity portfolios, whereas an equity fund has a higher level of risk than a debt fund. The risk factor will be reflected in the ULIP plan appropriately. In addition, ULIPS have greater risk than other types of investments. For instance, ELSS, which is likewise covered by section 80C, is a less hazardous and more diversified investment. When ULIPS is compared to a mutual fund product or an insurance plan on its own, the former will be riskier. Because of ULIPS’s cost structure, it is costly and challenging to obtain returns that will both assist you add to your initial investment and cover your costs. We might claim that the risk factor is higher for ULIPS because they are more expensive.

Types of ULIPs

ULIPs are categorized based on the following broad parameters:

Funds that ULIPs invest in
  • Equity Funds: When the premium is invested in the stock market, there is an increased risk involved.
  • Balanced funds: When the premium is invested in the stock market, there is an increased risk involved.
  • Debt Funds: When the premium is applied to debt instruments, the risk is lower but the return is lower. 
End use of Funds

Retirement Planning: For those of you who, while working, intend to invest for your retirement years.

Child Education: You can invest with the long-term objective of setting up money for an unexpected expense or to finance your child’s college education.

Wealth Creation: You can invest to accumulate a sizable corpus that you can use to fund a future financial objective.

Death Benefit to Policy Holders

Type I ULIP: This pays higher of the assured sum value or the fund value to the nominee in case of death of the policyholder.

Type II ULIP: You can invest to accumulate a sizable corpus that you can use to fund a future financial objective.

Post Office Time Deposit Scheme

ULIPs Vs Mutual Funds

Here is a comparison between the two:

ParticularsULIPsMutual Funds
NatureInvestment cum insurance productPure Investment product
WithdrawalOnly after lock-in-period of 5 yearsCan be withdrawn anytime
SwitchingAlternating between funds is permitted and not subject to taxation.Switching is permitted between schemes of the same fund house. However, it’s treated as a redemption and the resulting capital gains are taxable.
ChargesMortality charges, premium allocation charge, fund management charge and administration chargesNo entry load, the annual fund management charges apply and an exit load, if applicable.

Which ULIP Plans Are the Best in India?

When selecting the top ULIP plans available in India, investors need to consider a few factors. Here is a list of things to think about when purchasing one:

Analysis of Personal Investment Goals:

  • Match your investment horizon and long-term financial objectives with the ULIP plan.
  • Clearly state your insurance goals based on your age, your family’s needs, and your future plans.

Set Investment Goals

  • Take your time determining your investment objectives, which might include everything from post-retirement needs to school funds. 
  • Seek for ULIPs that meet and complement your individual investing objectives.

Compare ULIPs:

  • Carefully consider and weigh the benefits and characteristics of various ULIP plans.
  • Use internet comparison tools for insurance to get a quick and comprehensive assessment.

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