A Mini Guide to what is ULIP - Greyfont

A Mini Guide to what is ULIP


Unit Linked Insurance Plan, commonly referred to as ‘ULIP’, is a hybrid life insurance product that offers the triple benefits of life insurance, investment and tax savings. Ever since the reintroduction of LTCG (Long-Term Capital Gains) taxes in budget 2018, ULIP has become a must-have investment instrument for investors of all budget, and risk appetite.


Premiums paid for ULIP plans are divided into 2 different components – insurance component and the investment component. One portion of the premium is paid towards the life insurance component of the ULIP plan, while the other portion goes towards the investment component.


ULIP plans invest in wide variety of qualified investment instruments including equity, debt, liquid funds, shares, bonds, stocks, etc.  Cherry on the top is the fact that ULIP plans allow investors to choose fund options of their choice, depending upon their risk tolerance level, and investment objectives.  All in all, ULIP investment makes for the best bet for any investor looking to make lucrative return on investment, without having to worry about LTCG taxes.


But before jumping in action and investing in ULIP plans, you must try and find out answers for a few important questions. Wondering what are these questions?


Skim through this article to find out…


Question 1: What are the main benefits of investing in ULIP?

Answer: ULIP offers a lot of inherent benefits. Here’s a list of just 5 of the most notable benefits of ULIP plans:

1. Control – ULIP allows investors to choose investment funds depending upon their risk tolerance and financial objectives.

2. Flexibility – ULIP allows investors to switch between investment funds of their choice without having to pay through their nose.

3. Life Cover – ULIP provides a comprehensive life cover with lucrative investment opportunity to ensure complete financial protection for investors and their loved ones.

4. Tax Benefits – Being essentially a life insurance product, ULIP provides tax benefits under Section 80C and Section 10(10D) of the Indian Income Tax Act. 

5. Liquidity – ULIP allows investors to partially withdraw their investment capital in the event of unforeseen circumstances.


Question 2: Where does ULIP invest money?

Answer: ULIP plans majorly invest in equity funds, debt funds, money market funds, balanced funds and fixed interest bonds. Investors can choose the investment fund of their choice and switch between funds and asset class.


Question 3: Do investors need to understand market trends to invest in ULIP?

Answer: No! Investors need not understand the market trends to invest in ULIP plans. Those who do not fully understand the market trends may use the services of an expert fund manager to handle their investment portfolio. Fund managers analyse the market and advice investors about the best investment fund options.


Question 4: How to check the performance of my investment funds?

Answer: Net Asset Value (NAV) indicates the performance of investment fund. Most ULIP providers offer daily and historical NAV for different investment funds on their website and one may visit their insurer’s website to check their investment funds NAV value, its growth and projected future performance.


Question 5: Are there any charges associated with ULIP?

Answer:ULIP plans come with a few charges associated. While these charges may vary depending upon the choice of insurer and plans, there are broadly 5 types of charges associated with ULIPs. These are:

1. Policy administration charge: It is a monthly charge levied for the administration of ULIP policy.

2. Premium allocation charges:It is an upfront deduction from the premium after which the money is invested in one’s chosen investment funds.

3. Mortality charges: It is a monthly charge levied for theLife Cover component of the ULIP plan. This charge may vary depending upon the age of the life insured.

4. Fund management charges:It is a charge levied for the management of the investor’s chosen investment funds.

5. Premium redirection charge: It is a charge levied if the investors choose to redirect their future premiums to less risky investment fund options, without altering the current investment fund structure.


Over to You!

Now that you know everything you need to know to get started with ULIP investments, it’s time to put the learning into practice. If you have still not invested in a ULIP plan, go for it now. Remember, the sooner you invest in ULIP, the earlier you’ll be able to yield returns on your investment.


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