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What is a ULIP?

A Unit Linked Insurance Plan (ULIP) is a life insurance plan with an additional feature of investing your money in the market for future financial goals. This means that you get the dual benefit with ULIP plan of protecting your family as well as securing your future. To ensure you fulfil your financial goal, you need first choose the right plan suited for your needs.
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How does a Unit Linked Insurance Plan work?

Contrary to popular conception, many life insurance products are instruments for investment, including ULIPs. A Unit Linked Insurance Plan (ULIP) is a market-linked product. This means that along with providing you with a life cover, your investment is diversified in the open market and the returns are incidental to the market performance, helping you in generating better returns in the long term.

In a ULIP, there is a death benefit which is the amount payable to the nominee in the event of death of the policyholder during the policy term. The policyholder will receive a maturity benefit if he or she survives the term of the ULIP.

Investments in ULIP plan can be customized to your preferences. You can choose the funds to invest in based on your risk appetite. Investors seeking lower risk may opt for debt funds while equity investments are desired by investors with higher risk. Moreover, you have the flexibility - you may switch between funds based on circumstantial dynamics so that you do not miss out on better performing funds.

A unit linked insurance plan also provides tax benefits as the premium or amount invested into the ULIP is exempted from tax under Section 80C. The amount received on maturity of this investment plan, is also tax exempted under Section 10(10D) of the Income Tax Act, 1961

ULIP plan

What are Death and Maturity Benefits in a ULIP?

Death and maturity benefits are central to any ULIP policy irrespective of the insurance provider the scheme is availed from.

Long Term Protection

Death Benefits

Death benefits of ULIPs are offered in case of unfortunate demise of the policyholder. Generally, death benefit is equal to the sum assured plus fund value.

Long Term Protection

Maturity Benefits

Maturity benefits on ULIP plan are offered to policyholders when the policyholder survives beyond the maturity period. Maturity benefits are equal to the amount of fund value.

Benefits of Investing in a ULIP

  • Flexibility:
    ULIPs let you choose the premium amount, as per your requirements. They also give you the option of selecting funds as per your choice. Many ULIPs also offer the possibility of increasing your premiums during your premium paying term. One can opt for a ULIP policy based on their financial goals and risk appetite.
  • Liquidity:
    No matter what your premium paying term or policy term is, after the lock-in period of 5 years, you can fully or partially withdraw funds from your account when you are in need of urgent funds.
  • Systematic Savings:
    ULIPs give you the benefit of putting aside a chunk of your income and save it for future use.
  • Wealth Accumulation:
    ULIP plan not only let you save your earnings, but also help in growing wealth by allocating it to market-linked funds.
  • Tax Benefit u/s 80c:
    Premiums paid are deductible from taxable income under Section 80C. The maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Why Should You Buy a unit linked insurance plan (ULIP)?

Saving for Future Goals

When it comes to fulfilling future goals such as buying a new home, child’s education, retirement planning etc., savings are a must. Without long term savings plans, it is difficult to balance short term needs and future goals. ULIPs help you save systematically and help you plan for these future goals.

Family’s Protection

Family’s Protection

ULIP is a life insurance plus investment plan that offers a life cover to the policyholder. In case of an unfortunate death, the dependant family of the policyholder will still be financially secured.

Tax Benefits

Provides Tax Benefit

All premiums are exempt from tax under Section 80C. The maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

High Returns

Good Returns

Unlike other investment plans, ULIP gives you the advantage of switching between funds depending upon their performance. This helps you to get a higher return on your invested amount by monitoring the growth.

Two Main Reasons Why You Should Invest in an ULIP Early On

As young investors, you should be aware of the two pillars of sound investing;

Long Term Protection

The Power of Compounding

The biggest benefit of starting early is the power of compounding which provides the foundation for time value for money. Even if you invest a small amount for several years consistently, it will grow into a large corpus.

Long Term Protection

Balanced Investment Portfolio

The other basic rule is to have a balanced investment portfolio. This simply means that you need a mix of financial plans that can fulfil different needs so that the future of you and your loved ones is always secure and stable. This strategy attempts to balance risk versus rewards by adjusting and rebalancing each asset in an investment portfolio according to the investor’s risk-taking ability.

Steps to Buy a ULIP Plan Online

Step2 >> Choose your premium and policy term

Step3 >> Make Payment

You can opt from monthly, half-yearly or yearly mode of payment and choose from a list of payment options such as:

  • Credit Card
  • Debit Card
  • Netbanking
  • Online Wallets

How can you save tax by investing in a ULIP?

All premiums under ULIP plan are deductible from taxable income under Section 80C. The maturity amount received is also exempt subject to conditions under Section 10(10D) of the Income Tax Act, 1961.

Tax Exemption under Section 80C on Premium Paid:
The premium paid in a financial year is eligible for deduction under section 80C of the Income Tax Act. An individual or a HUF can claim this deduction under Section 80C. The premium paid by a taxpayer under ULIP policy is eligible for deduction irrespective of which Life Insurer you choose. Premium paid towards a life cover taken with any insurer that is approved by the Insurance Regulatory and Development Authority of India (IRDAI), is eligible for a Section 80C deduction.
In order to claim deduction under section 80C, the premium paid should not exceed 10% of the sum assured. Further, here it is important to note that covering the life of an individual with a disability referred to under Section 80U or a disease referred to under Section 80DDB, the requirement to claim the deduction under Section 80C is that the premium should not exceed 15% of the sum assured.

term plan

Tax Exemption under section 10(10D) on Maturity amount received
The maturity amount in a unit linked insurance plan (ULIP) is fully exempt from Income Tax under Section 10(10D).
When the premium paid is more than 10% of the sum assured for policy issued after 1st April 2012 or more than 20% for policies issued prior to 1 April 2012, the maturity amount received from life insurance policy is fully taxable.


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Frequently Asked Questions

  • How does ULIP works?

    Unit linked insurance plans are insurance plans which combine the benefit of mutual funds with the benefit of life insurance in one plan or product. These plans provide market-linked returns along with life insurance coverage. They are very flexible and considerably stable. You can check the fund performance of any fund and you can change the fund(s) you want to invest in, as per your wish and risk appetite.

  • What is minimum lock in period for ULIP?

    ULIP plan comes with a lock-in period of five years. A lock-in period is the timeframe, i.e., five years, when the plan holder cannot withdraw or liquidate the value of the fund that has been accumulated. After the ULIP lock in period, partial withdrawals can be made. In some plans, unlimited free partial withdrawals can be made after the lock-in period. Some options allow policy holders to withdraw a specific amount on a month-on-month basis during the tenure of the policy.

  • What are tax benefits provided by Unit Linked Insurance Plan (ULIP)?

    Unit Linked Insurance Plan (ULIPs) also provide tax saving benefits as per the Income Tax Act, 1961. You get dual tax benefit with ULIP plan. For example, with Edelweiss Tokio Life - Gcap you can avail tax benefit on the premium you pay u/s 80C and even the returns are tax-free u/s 10(10D).

    Below is the tax –exemption benefits that you can avail with a ULIP plan:

    • Entry Benefit: You get tax benefit on the payment of your premium u/s 80C, 80D, and 80CCC.
    • Earning Benefit: The money growth that you get is not taxable.
    • Switching Benefit: You can make the switches between the equity and debt funds without paying any tax.
    • Exit Benefit: You also get tax exemption on the maturity amount.

  • Does ULIP provide death benefit?

    Like all life insurance plans, ULIP provides death benefit. The unit-linked insurance plans (ULIPs) provide both death and maturity benefits to the policyholder. As a part of death benefit, in-case of unforeseen situation, the insurance claim value will be the higher of available fund value or sum assured.

  • What are the additional benefits from ULIP plan?

    Along with tax benefits as per the Income Tax Act, 1961 ULIP plan also provides additional accrual benefits along with your returns. This acts as a bonus which you will get at the end of the policy term.

  • How do I make the most out of the funds in a ULIP?

    Again, that is your choice and depends on your risk-taking capacity. Always check the fund performance, see how the growth rate has been since the past few years and see all the available funds in the savings plan while you make the decision. Moreover, you do not have to worry about your decision because you can change funds unlimited number of times. There is no charge for switching funds.

  • What is the difference between a ULIP and an endowment plan?

    A ULIP is a market-linked investment cum insurance plan whereas an endowment plan is a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that he/she is able to get a lump sum amount on the policy maturity in case he/she survives the policy term. Endowment policies does not provide transparency, as there is no investment portfolio. However, ULIP plan is extremely transparent as you can track your investment portfolio.

  • What is the difference between mutual funds and ULIPs?

    Mutual funds are pure investment products whereas ULIPs are insurance cum investment plan. ULIPs are a relatively less risky product because they are insurance products.

  • How to choose the best ULIP plan?

    A ULIP or Unit Linked Insurance Plan serves the purpose of both investment and life insurance under a single plan. And the net premium paid by you is further invested in any of the chosen funds – equity, balanced, debt, etc. Upon ULIP maturity, the fund value of the insurance will be as per the value of the market. In any unforeseen situation such as death, the insurance claim value will be the higher of available fund value or sum assured.

    Here is the quick guide to choose best ULIP plan to meet your financial goals:

    1. Select best ULIP Fund Options as Per Your Goals
    2. Opt. for Required Amount of Life Insurance Cover
    3. Know the ULIP Charges
    4. Check-out the Tax Benefits
    5. Check-out the Features of ULIPs
    6. Stay Invested for a Long Term with ULIPs for the best returns
    A best ULIP plan will be a perfect solution to secure your future financial goals.

  • Is a term plan better than a ULIP?