5 Important Things You Should Know About ULIPs

For a long time, many individuals relied on endowment and term insurance plans for their insurance needs. These insurance plans were optimal for providing pure insurance coverage to the policyholders.

However, with the advent of Unit Linked Insurance Plans, policyholders started looking at them closely for the dual benefits that they offer. ULIPs provides you with the ability to get insurance coverage and stock market returns. Let’s learn about a few important ULIP benefits and features provided by the plan.

5 important things you should know about ULIP policies:

  1. What makes it unique:

While a ULIP plan is primarily an insurance plan, it provides many more features than a basic insurance plan. With ULIPs, you get the ability to merge insurance coverage and investment under a single plan. Along with this, you can pick the investment instrument based on your requirements and risk profile. Some of the key features offered through ULIP policies include:

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  • Tax benefits under Section 80C of the ITA.
  • Insurance coverage.
  • Provides you with a wide range of investment options to select from as per your risk profile.
  • Ability to invest systematically.


  1. Working of ULIPs:

In a unit-linked plan, the premiums you pay towards the plan are used to provide you with insurance coverage and help you build wealth. During the initial years of the plan, a huge portion of the premiums goes towards policy expenses. After these expenses are deducted, the premium amount is separated between providing insurance coverage and investing. You will be allocated the units for the amount invested in the fund of your choice. The fund can be debt, equity or a combination of both. The units’ value will depend on the performance of the fund in the market. The ULIPs fund value may remain low during the initial years because of the high expenses.

  1. Costs involved in ULIPs:

The different costs involved in ULIPs are:

  • Fund management charges:

These charges are levied for handling your funds. The insurer charges it as a percentage of the fund’s value, and it is calculated before calculating the fund’s net asset value.

  • Mortality charges:

The insurance company charges them for offering death cover through the plan. The insurance company calculates it after factoring in your age, health risk, etc.

  • Surrender charges:

They are levied when you surrender your plan prematurely. As per the IRDA rules, the insurance company will recover only the incurred acquisition cost if the policy is not continued.

  1. ULIP benefits on taxation:

As ULIPs are essentially an insurance plan, the premiums paid towards the plan are eligible for tax benefits as mentioned in the Section 80C of the ITA. In the event you pass away, the amount your beneficiaries receive will be entirely tax-free. The maturity benefits are also classified as a payout under Section 10(10D), and the entire amount will be tax-free.

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  1. Surrendering a ULIP:

You can surrender your unit-linked insurance plans prematurely if the need arises. However, it could lead to cost implications. If you surrender the plan, a percentage of the fund value must be paid as surrender charges based on the scheme. If the ULIP is surrendered in the initial 5 years, the insurance cover will cease. However, the surrender value of the plan will be provided after the initial 5 years are completed.

ULIP Premium Payment

A crucial element of an insurance plan is the premium amount. The premium amount is the amount you pay to the insurance company for upholding the policy. In a ULIP, your premium serves two purposes – life cover and wealth creation.

You can use the TATA AIA premium calculator to understand the premium calculation if you purchase the plan with them. Many insurers provide such tools on their websites. Make sure you determine the premium amount and the approximate returns before buying a policy.

In conclusion

If you’re on the lookout for a plan that will help you protect your loved ones and assist you in achieving your long-term goals, you must opt for ULIPs. However, before opting for ULIPS, you must learn about certain important things that are offered with the plans. Learning about them will help you purchase the most optimal plan.

Some general questions by customers:

What is the importance of ULIP?

A ULIP will provide you with insurance coverage and the ability to get market returns. With the plan, you get an assured insurance cover and the chance to build wealth systematically.

Is ulip a good investment?

Yes, ULIPs are good investments. They will help you protect your family’s future and help you build wealth by offering you different fund options.