Unit Link Ins,

What is ULIP (Unit Linked Insurance Plan)?

ULIP is the acronym for Unit Linked Insurance Plan. A ULIP is the combination of investment and insurance. Within this plan, the policyholders can make the premium payment annually or monthly. One part of the premium amount is used to provide a life insurance cover and the remaining sum is invested.

In these plans, the investments are subjects to the risks associated with the capital market. The policyholder bears the investment risk on his/her investment portfolio. Hence, it is recommended to make an investment choice basis the needs along with the risk appetite.

Another factor that has to be taken into consideration by the policyholder is the future needs of the invested funds. Moreover, a unit linked plan is much more transparent. The charges including fund management charges, allocation charges etc. are clearly stated upfront.

Unit Linked Insurance Plan also allows its investors to switch their investment from debt to equity and vice-versa, without running from pillar to post and any worries of being charged.

ULIP plans were first introduced in India by Unit Trust of India (UTI) in 1971. This was followed by ULIP offerings from Life Insurance Corporation in 1989. Initially, a lot of investors shied away from investing in ULIPs due to the high charges associated with this insurance-investment product. However, in the recent times, major life insurance providers including Bajaj Life, HDFC, ICICI Pru, and Edelweiss Tokio came out with new-age ULIP products with bare minimal charges and multiple features to ensure maximum returns and comprehensive insurance protection for the investors.

How to Choose the Best ULIP plans?

There are some things that an investor should keep in mind while choosing the best ULIP plans in India. Here’s a list of some pointers to consider while buying one:

Analysis of Personal Investment Goals

Before choosing a ULIP plan; it is a pre-condition for every investor to analyze their long-term financial goals. It is mandated to opt for a ULIP that is in sync with the investment horizon and the investment goals.

Decide Insurance Objectives

One should first decide the insurance objectives and then select a ULIP plan that fulfils them. If one is young, current as well as future family requirements need to be considered because the insurance cover should be adequate if something happens to the insured. Family planning, i.e. the number of children one plans to have is an important consideration. It is imperative to understand that ULIP is a long-term investment product. Therefore, one should be clear about the investment and insurance objectives when putting money in a unit linked insurance plan to get the maximum benefit from the investment.

Decide Investment Goals

Investment goals are extremely important. One should spend sufficient time and think before in deciding these goals. This exercise, if done well, makes the process of choosing ULIPs easy. Investment goals may vary from having a corpus for the higher education requirements of the children after some years to having sizeable funds for the child’s marriage. They may also include having the requisite amount of money for post-retirement needs. Utmost importance should be given to one’s investment goals. Once these goals have been decided, one can look for ULIPs with their benefits which fulfil the goals adequately.

Compare ULIPs

Every ULIP has its own set of features and benefits. A thorough comparison is must to choose one that is best for one’s individual requirements. The comparison can be done in the traditional offline way or online using one of the many online insurance comparison portals. The websites rank and compare plans of different insurance companies on parameters such as sum assured value, policy term, different charges and bring to the fore, the many differences in ULIP plans.

The investor can also make use of the ULIP Calculator to calculate the returns on the investment to make a well-informed and wise decision.


Yet another factor that is to be taken into consideration while choosing a ULIP plan is the flexibility that is offered by the intended unit-linked plan. Here are two things that the investor must take into account to compare ULIP plans on the parameters of flexibility:

Policy Tenure Flexibility: Many ULIP plans are long-term; resultantly, they tag along with a lock-in period of 5 years. Before investing, investors should analyze the investment horizon. Based on the intended period of the investment, they should pick the best ULIP from a variety of plans available at their disposal.

Investment Flexibility: The unit-linked insurance plan allows the policyholders to pick the investment options even before investing in their intended unit-linked insurance plans. Basis of the risk appetite the investors can choose from hybrid, equity, or debt ULIP plans.

Evaluate Risk Profile and Financial Stability

It is important to appraise one’s own your risk profile and financial stability before choosing a ULIP plan. Younger people who typically have higher risk appetite can go in for plans which are more equity focussed to the extent of 100% equity allocation. Those people for whom financial stability is of prime importance will do well with a plan that primarily invests in debt instruments which provide stability albeit with limited returns.

Understand Different Charges Levied

While choosing a ULIP plan from the best ULIP plans available, understand the charges well. These include initial charges, premium allocation fee, fund management fee, surrender charges, mortality charges, and administration and service charges. Proper information and knowledge about charges helps to filter and choose the right ULIP plan.

Be Well-Versed with the Features and Benefits of a ULIP Plan

Every ULIP plan is different. Each plan has distinct features and benefits. Having a proper understanding of the pros and cons of each plan makes the decision to choose a unit linked insurance plan easy. One is able to find a better fit based on personal requirements if the characteristics are understood well.

Check the Performance of the Plan

Finding out the performance of a ULIP plan under consideration is a good idea. One can refer to the performance of last three to four years. It gives a fair idea about returns that one can expect from the plan. The returns should also be compared to benchmark indices like the Nifty of the NSE and the Sensex of the BSE.

Solvency Ratio

The solvency ratio of an insurance company shows that whether the company will be able to honor its claims in the future or not. As per the IRDA guidelines, the insurance company must have a solvency ratio of at least 1.5.

Claim Settlement Ratio

The claim settlement ratio refers to the percentage of claims settled by the insurance company as compared to the total numbers of claims received by the company. Claim Settlement Ratio = No.of claim settled/ No.of claim received X 100

Performance of ULIP Funds

As ULIP is an insurance cum investment product, it is important for insurance holders to review the performance of the funds over the long-term. In a ULIP plan, the policyholder can invest in equity, balanced or debt fund as per their risk appetite and investment time horizon. By keeping a track of fund performance, the investors can make a better investment decision and can gain the maximum return on investment over a long-term period.

Investment Strategies Offered

There are many ULIP plans which provide an opportunity to make a strategic investment like if you want to create a financial cushion for retirement then you can invest in retirement ULIP plan or if you want to make an investment to provide financial security to your child then you can invest in a child ULIP plan.

How ULIPs work?

In unit linked plans, one share of the paid premium towards the plan goes towards ensuring the life cover for the policyholder, whereas the other share of the paid premium is invested in various types of fund options. The investors can choose the fund options basis their wealth creation goals and risk appetite. In the event of the untimely and unfortunate demise of the policyholder, the nominated beneficiaries will be given the insurance and/or the fund value, whichever is higher, based on the type of unit linked insurance plan.

Much like the mutual funds, the insurance company will give the ‘Units’ basis the proportion of the investor’s money invested in the market. This unit is the representation of the investment and is allocated a NAV that is evaluated and declared daily.

In order to understand the working of these plans, here’s an example:

Akash, a 30 year old man, invests in unit linked insurance plan with a yearly premium of Rs. 50,000 for a period of 20 years. The policy essentials would be:

Policy Details:

Initial Sum Assured = Rs. 5,00,000 (yearly premium x 10)
Annual Administration and other charges = Rs. 2500
Total Annual Investment = Rs. 47,500
Initial NAV Value = Rs. 10
Units purchased = (47500/10) = 4750

ULIP Returns:

Death Benefits Maturity Benefits
Payment made to the nominee if Akash dies within the policy term = Rs. 5,00,000 (Sum Assured) or the Fund Value (whichever is higher). Payment made at the time of maturity if Akash is alive, which will be the Fund Value.

Benefits of ULIP (Unit Linked Insurance Plan)

The best ULIP plan offers several advantages. Some of the important ones are explained in detail below::

Life Protection, Savings, and Investment

Investing in ULIPs helps to inculcate the habit of saving and investing, both of which are essential for building long term wealth. ULIPs offer dual benefit of a life insurance cover as well as savings at market-linked returns. With the feeling of peace of having life protection, one can invest in a range of market funds to earn a high rate of return.

Market-linked Returns

ULIP plans present an opportunity to earn market linked returns. A part of the premium paid in a ULIP plan in invested in funds which invest in different market instruments including debt and equity in varying proportions. The policyholder stands a chance to earn returns based on the market. Investors can use the data such as the ULIP NAV to keep a tab on returns and ensure they stay invested in the best ULIP plans.

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply

Investment and Insurance Benefits

Unit Linked Insurance Plan offers the triple benefits of investment, life cover, and tax savings. Meaning that the investor gets to benefit from a comprehensive life cover based on his/her preferences and budget and reap market-linked returns on his/her investment.

Death Benefits

A unit-linked plan offers death benefits in case of the death of the insured during the policy term. While the death benefits are catered to as SA together with the value of the fund, benefits may differ based on the cause of the demise of the insured.

Maturity Benefits

A ULIP plan also comes packed with maturity benefits in case the policyholder endures the maturity period of the plan. Usually, maturity benefits are catered to the insured as the sum of the value of the fund. Nevertheless, some insurance companies may cater to add-on benefits based on the terms and conditions.

Long-term Investment Benefits

A ULIP plan is one of the most sought-after investment instruments for the ones who are seeking to earn maximum returns on the investments they make in the long-term. It is vital to understand that the market volatility and fluctuations may have an impact on the returns in the short-term. Instead, keeping the investment for a longer period makes it easy for the investors to deal with the market volatility and earn a high rate of return on the investment. A unit-linked insurance plan allows for long-term investments and makes it simpler for the investors to reap the maximum returns on the investments.

Withdrawal Benefits

A unit-linked insurance plan comes handy in such situations. A ULIP plan allows its investors to withdraw a portion of the investments in case of emergency, after the completion of a pre-determined timeline. Generally, such withdrawals are tax-free.

Tax Deductions Benefits

ULIPs allow tax is invested in a ULIP is deductible from one’s, reducing the money owed to the government by way of income tax.

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