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How Does a ULIP Works?
A Unit Linked Insurance Plan (ULIP) is a unique financial product that combines the features of insurance and investment. Understanding how a ULIP works is essential for those looking to secure their financial future. In this brief overview, we will help you understand the fundamental workings of a ULIP and how it allows you to invest in a variety of funds while also providing insurance coverage.
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- How Does a ULIP Works?
What is a ULIP?
The full form of ULIP is the Unit Linked Insurance Plan. It is an investment plan that provides you with the following triple benefits:
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Life Insurance Coverage
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Investment Options in Market-linked Funds
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Tax Benefits under the Income Tax Act, 1961
A ULIP is a type of life insurance policy that invests a portion of the premium paid in a variety of funds, such as equity, debt, hybrid, or index funds. You can choose the fund allocation based on your risk appetite and financial goals.
Latest ULIP NAVs
| Fund Name | NAV  |
AUM |
5 Yr Returns |
10 Yr Returns | |
|---|---|---|---|---|---|
| SBI Life Balanced Fund | ₹71.76 | ₹19525 Cr | 8.08% | 9.72% | |
| SBI Life Bond Fund | ₹50.48 | ₹17276 Cr | 5.32% | 6.6% | |
| SBI Life Equity Fund | ₹192.23 | ₹71877 Cr | 10.68% | 11.68% | |
| SBI Life Equity Optimiser Fund | ₹53.36 | ₹2365 Cr | 11.17% | 11.53% | |
| SBI Life Growth Fund | ₹92.3 | ₹2657 Cr | 9.68% | 11.18% | |
| SBI Life Money Market Fund | ₹36.92 | ₹528 Cr | 5.82% | 5.97% | |
| SBI Life Top 300 Fund | ₹55.53 | ₹1805 Cr | 10.47% | 12.25% | |
| SBI Life Pure Fund | ₹27.02 | ₹1076 Cr | 10.59% | - | |
| SBI Life Bond Optimiser Fund | ₹22.31 | ₹3215 Cr | 7.28% | - | |
| SBI Life Bluechip Fund | ₹9.75 | ₹2933 Cr | - | - | |
| SBI Life Balanced Pension | ₹72.16 | ₹773 Cr | 8.8% | 10.59% | |
| SBI Life Bond Pension | ₹44.91 | ₹548 Cr | 5.16% | 6.88% | |
| SBI Life Equity Pension | ₹73.25 | ₹10959 Cr | 11.88% | 12.68% | |
| SBI Life Growth Pension | ₹72.3 | ₹597 Cr | 10.3% | 11.69% | |
| SBI Life Money Market Pension | ₹34.12 | ₹150 Cr | 5.77% | 5.96% | |
| SBI Life Equity Optimiser Pension | ₹56.99 | ₹910 Cr | 11.15% | 12.33% | |
| SBI Life Top 300 Pension | ₹54.37 | ₹668 Cr | 10.68% | 12.41% | |
| SBI Life Midcap Fund | ₹49.59 | ₹49877 Cr | 19.12% | - | |
| SBI Life Corporate Bond Fund | ₹16.4 | ₹1082 Cr | 5.28% | - | |
| SBI Life Equity Elite II | ₹50.43 | ₹10924 Cr | 10.02% | 11.29% | |
| SBI Life Index | ₹46.31 | ₹86 Cr | 10.91% | 11.9% | |
| SBI Life Index Pension | ₹48.34 | ₹24 Cr | 11.02% | 11.94% | |
| SBI Life Discontinued Policy Fund | ₹25.47 | ₹10053 Cr | 5.57% | 5.96% | |
| SBI Life Equity Elite | ₹85.88 | ₹11 Cr | 13.08% | 14.13% | |
| SBI Life P-E Managed | ₹38.26 | ₹194 Cr | 9.48% | 10.1% | |
| SBI Life Guaranteed Pension GPF070211 | ₹26.58 | ₹2 Cr | 5.05% | 6.46% | |
| SBI Life Bond Pension II | ₹23.41 | ₹28700 Cr | 5.1% | 6.24% | |
| SBI Life Equity Pension II | ₹40.6 | ₹10509 Cr | 10.78% | 12.14% | |
| SBI Life Money Market Pension II | ₹20.84 | ₹1527 Cr | 5.54% | 5.7% | |
| SBI Life Discontinue Pension Fund | ₹21.52 | ₹6325 Cr | 5.59% | - | |
| SBI Life Group Growth Plus Fund | ₹56.39 | ₹2 Cr | 8.38% | - | |
| SBI Life Group Debt Plus Fund | ₹40.15 | ₹110 Cr | 6.24% | - | |
| SBI Life Group Balance Plus Fund | ₹47.88 | ₹10 Cr | 7.25% | - | |
| SBI Life Group Balance Plus Fund II | ₹26.33 | ₹978 Cr | 7.31% | - | |
| SBI Life Group Debt Plus Fund II | ₹26.04 | ₹285 Cr | 6.27% | - | |
| SBI Life Group Growth Plus Fund II | ₹26.48 | ₹264 Cr | 8.72% | - | |
| SBI Life Group Short Term Plus Fund II | ₹21.47 | ₹19 Cr | 5.79% | - | |
| SBI Life Group Money Market Plus Fund | ₹13.94 | ₹2 Cr | 3.19% | - |
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How Does a ULIP Works?
You can understand the workings of a ULIP, or Unit Linked Insurance Plan, from the steps mentioned below:
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Premium Payment: You pay regular premiums to the insurance company.
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Premium Allocation: The insurer divides your premium into two parts - one for insurance coverage and the other for investment.
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Multiple Fund Choices: You choose from different funds for the investment portion, such as:
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Equity funds
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Debt funds
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Hybrid funds
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Index funds, and so on
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ULIP Fund NAV: The performance of your investment depends on the Net Asset Value (NAV) of the chosen fund.
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Insurance Cover: A portion of the premium provides life insurance coverage under which your beneficiary gets a death benefit in your absence.
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Flexibility of Investment: You can switch funds or make partial withdrawals based on your financial goals.
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Charges: ULIPs have various charges, such as fund management fees and mortality charges.
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Returns: The returns you receive depend on the market performance and the chosen fund's performance.
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Tax Benefits: ULIPs offer tax benefits on premiums under Section 80C and on maturity proceeds under Section 10(10D) of the IT Act, 1961.
In essence, ULIPs offer a mix of insurance and investment, giving you the potential for wealth creation while protecting your family's financial future.
What are the Features of a ULIP Plan?
The key features of a Unit Linked Insurance Plan (ULIP) are as follows:
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Free Fund Switching:
ULIP plans offer you a wide range of best investment options, depending on your risk appetite and financial goals. Investors compare funds to find the best SIP investment that aligns with their strategy and objectives.
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Taxation:
ULIPs offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act 1961.
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Premiums paid towards ULIPs are eligible for tax deductions up to Rs. 1.5 lakhs per annum
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The maturity benefits are tax-free if the annual premium paid is below Rs. 2.5 lakhs.
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The death benefits are also free of tax.
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Partial Withdrawals:
ULIPs allow you to make partial withdrawals from your investment after a lock-in period of 5 years. This can be helpful in case of emergencies or unforeseen expenses.
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Life Insurance Coverage:
ULIPs provide life insurance coverage to the policyholder. In the event of the policyholder's death, the nominee receives the death benefit, which is typically the sum assured plus the value of the units held in the policy.
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Lock-in Period:
ULIPs have a mandatory lock-in period of 5 years. This aims to promote long-term financial planning.
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Transparency:
A Unit Linked Insurance Plan provides transparency by disclosing the allocation of funds and charges. This helps you to get clarity on your investment.
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Loyalty Additions:
Some of the best ULIP plans offer loyalty additions. This can enhance the value of your policy over time.
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Maturity Benefit:
At the end of the policy term, you receive the fund value with your maturity returns. The maturity amount can be in lump sum or periodic payouts as per your choice.
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Fund Management:
Skilled fund managers handle your investments within ULIPs. They aim to provide you with potential returns by making investment choices backed by analysis and research.
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Top-ups
ULIPs allow additional investments (top-ups) over and above regular premiums to enhance investment potential.
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Rider Options
You can add riders like the following to enhance the coverage for specific needs of your family:
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Critical illness rider
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Accidental death benefit rider
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Disability benefit rider
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Child benefit rider
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Waiver of Premium (WOP) rider
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ULIP charges
A ULIP plan has charges like premium allocation, fund management, and policy administration, which impact your returns.
Wrapping It Up
ULIPs (Unit Linked Insurance Plans) are investment-cum-insurance plans that combine the benefits of wealth creation and financial protection. This makes them a versatile financial tool for individuals looking to meet their long-term financial goals. Understanding the underlying investment options and costs associated with ULIPs is crucial in making informed decisions and optimizing their benefits.
FAQ's
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How does the ULIP plan work?
ULIP stands for Unit Linked Insurance Plan. It is a type of financial product that provides you with a combination of insurance and investment. When you invest in a ULIP, a portion of your premium is allocated towards life insurance coverage, while the rest is invested in a variety of funds, such as equity, debt, or balanced funds.The value of your ULIP investment will depend on the performance of the funds you have invested. If the markets perform well, your investment value will increase.
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Is ULIP a good investment?
ULIPs can be a good investment option for individuals who have a long-term investment horizon and are willing to take on market risk. However, it is important to weigh the benefits and drawbacks carefully before making an investment decision. -
What are the disadvantages of ULIP?
The disadvantages of ULIPs include:-
The value of your investment will depend on the performance of the stock market
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ULIPs have a number of charges associated with them, such as premium allocation charges, mortality charges, and fund management charges.
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ULIPs can be complex products to understand, especially for first-time investors.
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If you surrender your ULIP policy before the maturity date, you may have to pay surrender charges.
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Can I break a ULIP before maturity?
Yes, you can break a ULIP before maturity. However, ULIPs have a lock-in period of 5 years. This means that you cannot withdraw your investment before the lock-in period is over. -
What happens to a ULIP after maturity?
When a ULIP plan matures, the policyholder has the following options:
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Withdraw the full amount of the fund value plus any bonus that may have accrued
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Continue the policy for a longer period of time to generate higher returns
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Purchase an annuity plan with a guaranteed income stream for the rest of your lifetime
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Insurers Offering ULIPs
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or
insurance product offered by an insurer.
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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.