Most of us aim to secure our family’s future while also growing our savings. Usually, this means buying insurance and investing in market-linked avenues as separate goals. But what if a single product could do both? That’s exactly what a ULIP Plan (Unit Linked Insurance Plan) offers. A ULIP is a type of insurance plan that provides both investing benefits to help you achieve your long-term objectives and life insurance to safeguard your family financially in the event of an emergency. It gives you the reassurance of financial protection for your family and the chance to build wealth over time. However, it is important to note that returns are subject to market performance.
Below is a detailed look at how ULIPs work and why they can be a strong addition to your portfolio.
How a ULIP Plan Works
In a ULIP, every premium you pay splits into two main parts. A specific portion goes toward life cover, ensuring your family’s financial security in case something happens to you. The rest is invested in the funds you choose. These could be equity, debt, or balanced funds. You can pick the fund mix based on how comfortable you are with market fluctuations and how long you plan to stay invested. Using a ULIP return Calculator can help you plan your savings and investments in the best possible way.
Here’s the key advantage: you get both insurance and the potential for investment gains in a single plan. This is different from a traditional insurance policy, which primarily offers life cover without any direct link to market returns.
Flexible Investing by Shifting Between Funds as Needed
One of the biggest selling points of a ULIP plan is the ability to shift your money between different fund options. You may begin with an equity-heavy allocation in your younger years to aim for higher returns. But if, at some point, you wish to safeguard your gains or become more cautious, you can switch to a debt or balanced fund.
For instance, suppose you have a mid-term goal of buying a house in five years, and you’re currently investing in equity funds. If the markets become too volatile a couple of years before your goal, you might want to shift to a safer fund to lock in returns. This kind of fund-switching is usually done without extra charges. However, there might be charges involved after a few free switches.
Comparing ULIPs with Traditional Insurance
It’s normal to wonder how ULIPs compare to more conventional life insurance plans. The short answer is that a ULIP is more than just insurance; it’s an investment as well. Traditional plans focus purely on offering a death benefit or a guaranteed maturity amount, but they don’t let you get market-linked returns.
| Feature | ULIP Plan | Traditional Life Insurance |
| Primary Goal | Insurance + Market-Linked Investment(not guaranteed) | Pure Life Insurance |
| Returns | Depends on fund performance (equity, debt, etc.) and is subject to fluctuation | Mostly guaranteed or bonus-based, usually lower |
| Flexibility | Switch between funds, partial withdrawals after lock-in | Not flexible with fund choices |
| Transparency | NAV-based, the investor sees how funds perform | Limited clarity on how returns are generated |
| Best For | Long-term wealth creation + insurance | People wanting only insurance cover |
The Value of a ULIP Calculator
Many investors find it difficult to estimate how much they could earn through a ULIP plan, especially if the investment grows over a decade or more. That’s where a ULIP Calculator can be a game-changer. By entering details like your premium, policy tenure, and expected rate of return, the calculator provides a rough projection of your potential corpus.
While calculators offer estimates, they’re still quite useful for financial planning. They encourage you to check if you’re on track to meet future expenses or if you need to adjust your strategy.
Comparing Various Fund Options
The interesting part of a ULIP is that you’re not confined to a single style of investment. The policy might offer a range of funds, each with its own risk profile, from high-risk equity to low-risk debt. For example:
- Equity Fund: Targets higher growth but can be volatile.
- Balanced Fund: Mixes equity and debt for moderated risk.
- Debt Fund: Aims for stable but lower returns through government bonds and corporate debt.
In some ULIPs, you even get niche funds, like those focusing on mid-cap stocks or sustainability-based companies. Whatever the fund, the concept remains consistent: at any point, you can decide to shift your allocation. This dynamic nature sets ULIPs apart from more static investment vehicles.
Tax Advantages of a ULIP Plan
A ULIP often stands out for its tax benefits.
- The premiums you pay can be eligible for deductions under Section 80C, up to INR 1.5 lakh a year.
- Also, the maturity proceeds can be tax-exempt under Section 10(10D) only if the premium paid does not exceed 10% of the sum assured in any given year. However, the Finance Bill 2021 states that ULIPs purchased on or after February 1, 2021, and that the total annual premium of all plans due in a fiscal year must not be subject to the provision. If a ULIP’s premium exceeds INR 2.5 lakh per year, maturity benefits become taxable, but the policy itself remains active.
Tax laws do change, so it’s wise to stay updated or consult a professional. But in general, ULIPs have a favourable tax structure, making them attractive for people who want to optimise their investment while reducing their taxable income.
Long-Term Commitment Is The Key to Better Returns
ULIPs have a mandatory 5-year lock-in period. You can gain from long-term investment during the lock-in period. Partial withdrawals are permitted, provided that the total amount taken out in a given year does not surpass 20% of the fund’s value within a policy year.
Even beyond the lock-in period, there are still better choices than giving up your coverage. Markets tend to fluctuate, therefore, investing in a period of 10 to 15 years can help smooth out the volatility. You also benefit from compounding, which amplifies your earnings over time.
Conclusion
The Unit Linked Insurance Plan serves as a robust foundation for establishing financial stability through its operation. The ULIP plan unites investment and life insurance coverage benefits in a single solution for customers.
Reputable insurers like Axis Max Life Insurance enable customers to obtain flexible coverage through their ULIP investment products. Such products enable disciplined savings by enforcing lock-in requirements and simultaneously deliver flexibility features and potential growth during an extended period of time. Expanding your financial resources through a solution offering dual benefits justifies the consideration of ULIPs as recommended investments.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.
Standard T&C apply
Tax benefit is subject to change as per prevalent tax laws.
