What is (ULIP) - Unit Linked Insurance Plan?

ULIP full form in insurance is Unit Linked Insurance Plan. The scheme offers a two-fold benefit to its investors. The investment component of ULIP enables you to invest and achieve your long-term financial goals. On the other hand, its life cover ensures financial security for your family in the event of an unfortunate incident.

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What is ULIP Plan? 

The full form of ULIP is Unit Linked Insurance Plan. It provides the benefits of insurance and investment under one plan. One part of the premium paid goes towards life insurance and the rest goes towards investment in market-linked securities. 

ULIP schemes allow people to invest in a range of funds such as equities, debt, or a combination of both, while also providing them with insurance coverage. 

Benefits of Investing in ULIP 

As a hybrid insurance plan, there are many advantages to investing in a ULIP plan. Let’s take a look at them.

  1. ULIP Provides Freedom to Choose Life Cover Option

    • ULIP plan allows policyholders to choose their preferred life cover amount.

    • The minimum life insurance offered in most ULIP plans is 10 times the annualized premium.

    • The life cover amount can vary depending on the policy.

    • Some policies can provide a life cover amount as high as 40 times the annual premium or even higher.

  2. ULIP Provides Freedom to Choose the Investment Type

    • ULIP plans offer three types of funds - debt, equity, and balanced funds.

    • Investors can choose to invest in any of these funds based on their risk appetite and investment objective.

    • Equity funds are suitable for investors with a high-risk appetite.

    • Debt funds are suitable for investors who want to gain a steady return on investment.

  3. ULIPs offer Flexibility

    • ULIP offers flexibility as a major advantage of investing in it.

    • Unit-linked Insurance Plans allow insurance holders to switch between funds as per their requirements.

    • Investors can choose to invest in equity instruments or debt funds depending on the market conditions and risk appetite.

    • ULIP enables investors to make changes to their investment portfolios

    • The flexibility of ULIP allows investors to take advantage of market opportunities and mitigate risks in their investment portfolio.

  4. ULIPs are Liquid

    • ULIP plans usually have a lock-in period of 5 years.

    • After the lock-in period, policyholders can make partial withdrawals.

    • The purpose of partial withdrawals is to fulfill short-term financial objectives.

    • Partial withdrawals allow for immediate expenses to be taken care of, such as a child's education or buying a home.

  5. Opportunity for Goal-Based Planning

    • ULIP plans are designed for long-term financial objectives.

    • ULIP plans offer life protection to ensure financial security for the family against any unforeseen event.

    • They provide flexibility in choosing investment options and adjusting premium amounts based on changing needs.

    • It is important to carefully evaluate the features and benefits of different ULIP plans before selecting one.

  6. Tax Benefits

    • Unit-linked insurance plans offer the benefit of life protection and tax benefits.

    • The insured can avail of tax benefits under the plan.

    • Investment returns and premiums paid towards the policy are tax-exempted.

    • The tax benefits are available under section 80C and 10(10D) of Income Tax Act 1961.

Why is ULIP a Better Investment Option?

Understanding ULIP meaning in detail can help you invest wisely in the scheme. Here are some reasons why you should invest in ULIPs:

  • Offers dual benefits of investment and insurance

  • Market-linked returns to build wealth

  • Best suitable for long-term investment horizon

  • Significant life cover to ensure policyholder’s family’s financial safety

  • Choice of investment in equity, debt, and hybrid funds

  • Investment portfolio management by professionals

  • Free switch between funds to get desired returns

  • Tax benefits

While it has multiple benefits, it is important to define your investment goals and amount, risk appetite, and life cover beforehand to finalize a suitable plan.

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

How Do ULIPs Work?

ULIP’s full form is Unit Linked Insurance Plan (ULIP). It offers both life protection and investment benefits to the policyholder.

To understand the working of Unit-Linked Insurance Plans, here’s an example:

Mr Sharma, a 30 year old man, invests in a unit linked insurance plan for 20 years. He pays a yearly premium of Rs. 50,000 for 10 years.

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 Mr Sharma 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 Mr Sharma outlives policy term, which will be the Fund Value.

Types of ULIP

Classification by Purpose

ULIP plans can be classified based on the purpose

  1. ULIPs for Retirement

    In this plan, the insured needs to make the payment while being in service which is gradually collected in a corpus amount. The amount collected is later paid to the insured in the form of annuities after retirement.

  2. ULIPs for Wealth Collection

    This plan is specifically designed with an objective to create wealth over a long period of time. ULIP for wealth collection is recommended for individuals who are young and by investing in this plan the insurance buyers get the flexibility to fund their future financial goals.

  3. ULIPs for Children Education

    • Parents aim to secure their child's financial future so they can achieve important milestones in life.

    • ULIP (Unit-Linked Insurance Plan) plans offer money in installments at specific intervals of time.

    • Child insurance ULIP plans are designed to ensure all of a child's financial needs are met even if their parents are absent.

ULIP Charges

In ULIP plans, the policyholder needs to pay various charges. These ULIP charges can be broadly classified as:

  1. Mortality Charge

    The mortality charge of the policy depends on various factors like the sum assured, age, tenure, etc. This charge is applicable for the insurance coverage offered by the policy and is deducted on a monthly basis.

  2. Premium Allocation Charge

    In the starting year of the policy, a fixed percentage is deducted from the premium paid as a premium allocation charge. The premium allocation charge includes the intermediary commission expenses, initial and renewal expenses. It is charged at a higher rate.

  3. Switching Funds Charge

    In most of the ULIP plans switching between funds is free up to a certain number in a year. Any further switches between funds might acquire a charge of Rs.100-Rs.250 per switch.

  4. Fund Management Charge

    This charge is levied by the insurance company to manage different funds in the ULIP. The fund management charge is deducted before arriving at the NAV figure. The maximum charge applicable every year is 1.35% of the fund value and is charged daily. 

  5. Policy Administration Charge

    This charge is applicable for the administration of the policy and is charged every month by the cancellations of units from the chosen funds. This charge can be imposed at a fixed rate or as a percentage of the premium amount.

  6. Partial Withdrawal Charge 

    After the completion of ULIP lock-in period of 5 years, partial withdrawals are applicable under the ULIP plan. However, some plans offer unlimited withdrawals, some are restricted to 2-4 withdrawals. Any withdrawals more than this are charges based on the transaction.

Unit Linked Insurance Plans (ULIPs) Comparison with other Investment Options Available Under Section 80C 

Investment Option Risk Liquidity Tax Benefits
ULIPs Market Risk Partially liquid after 5 years Tax deduction on investment up to Rs. 1.5 lakh under Section 80C and tax exemption on the maturity amount under Section 10(10D)
Public Provident Fund (PPF) Low risk Partially liquid after 6 years None 
Equity Linked Saving Scheme (ELSS) High risk Partially liquid after 3 years Gains above Rs 1 lakh in any given financial year are taxable under LTCG at 10%
National Pension System (NPS) Market risk Partially liquid after 3 years (up to 25%) Tax deduction on investment up to Rs. 1.5 lakh under Section 80C and additional tax deduction of up to Rs. 50,000 under Section 80CCD(1B)
Tax-Saving Fixed Deposits Low risk Not liquid Tax deduction on investment up to Rs. 1.5 lakh under Section 80C and taxable interest
Sukanya Samriddhi Yojana (SSY) Low risk Partially liquid after 5 years Tax deduction on investment up to Rs. 1.5 lakh under Section 80C and tax exemption on the interest and maturity amount

Wrapping It Up! 

Unit Linked Insurance Plan (ULIP) offers the policyholders the flexibility to choose their investment options and the amount they want to invest. By understanding its features and ULIP meaning, investors can benefit from the dual benefits and get high returns to build a corpus.

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


  • Q: What is the minimum lock-in period for ULIP?

    Ans: ULIP plans come with a minimum lock-in period of 5 years.
  • Q: Is ULIP a good investment?

    Ans: Yes, ULIP is a lucrative option of investment as it offers the combined benefit of insurance and investment.  This is best suitable for individuals who want to accumulate funds in the long-term along with the benefit of insurance coverage.
  • Q: What should one keep in mind while investing in ULIP?

    Ans: While investing in ULIP the policyholder must consider certain important aspects like:
      • What do you want to achieve from your money?
      • What is your risk appetite?
      • What is your financial objective? Whether you want to create a fund for retirement or you want to have a backup to deal with any type of emergencies that may occur.
      • What is the investment tenure?

    Keeping all these points in mind, the policyholder should invest in ULIP.

  • Q: How ULIP better than other investments?

    Ans: As compared to other investment option ULIP plans not only offers the benefit of life protection but also provides an opportunity to the investors to create a financial cushion for future and gain profitable returns on investment. The plan offers the investors to choose from a wide range of fund options to invest in. Moreover, the other advantages offered by the policy makes it a better option of investment as compared to others.
  • Q: What is ULIP NAV?

    Ans: ULIP NAV (net asset value) is the total value of units holding minus the value of its liabilities. Thus, NAV is computed after deducing liabilities such as marketing expenses, management fees, operating expenses, etc.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
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