All individuals require a life cover. A life insurance plan helps your dependents – spouse and children – avoid a financial crisis in the unfortunate case of your demise. Besides life insurance, individuals invest in an array of investment products to earn good returns and to build a corpus for the future.  

What if a single product could offer both – insurance and investment? The answer lies in ULIPs – Unit-Linked Insurance Plans. We take a look at the double benefits of investing in ULIPs along with their features, working and more.

What is a ULIP?

A ULIP is an investment product offered by life insurance companies. It provides the best of both worlds – insurance + investment in a single product.

The first ULIP plan in India was introduced nearly five decades ago in 1971 by the Unit Trust of India (UTI). Today, several leading life insurers like ICICI Pru, HDFC Life, Edelweiss Tokyo, Bajaj Life, Max Life and several others offer an array of ULIP plans to meet the requirements of different categories of customers. 

ULIP – Unit Linked Insurance Plan is a mix of insurance and investment. The primary goal of a ULIP plan is to help in wealth creation, along with offering life cover to the insured. When you invest in a ULIP, the insurer invests a portion of your premium towards life insurance, and the rest is invested into a fund – debt or equity. You can choose how to utilise the investment portion of the ULIP based on your long-term financial goals like a child's education, retirement planning, and others.

The premium is paid either monthly, semi-annually or annually. A small portion of the premium goes to your life insurance, while the rest is invested in – stocks, bonds, or debts – just like a mutual insurance plan. 

You have to pay the premium for the entire policy term – say 5, 10 or 15 years. During this period, the insurer accumulates mutual fund units in your account. You can choose whether you want to invest your money in equities or debt. If you are an aggressive investor who can afford moderate to high risks, then you can go for an equity-oriented fund. On the other hand, if you are a conservative investor, then you can opt for debt-oriented funds. 

The latest generation of ULIP plans has lower charges compared to older ULIPs. Traditional insurance plans offer returns of around 4 to 6%.  ULIPs, on the other hand, provide double-digit gains, especially when you have chosen equity-oriented funds and stay invested for the long term. 

Top 5 Benefits of Investing in ULIPs

The primary purpose of all investments is to grow one's wealth by earning good returns. There are numerous investment products available on the market. But what makes ULIPs the right choice? Check out the top reasons why investing in a ULIP is advantageous.

  1. Double Benefit of Insurance cum Investment

Among all investment products, ULIPs have one characteristic feature. It offers the dual benefits of both insurance cum investment. Unlike other investment products, ULIPs are not provided by a fund house. Instead, it's an investment product offered by insurers.

A ULIP is managed by a fund manager or a team of fund managers. The manager invests a portion of the premium in various investment avenues like equities, debts or bonds, depending on the preference of the investor. The remaining portion of the premium is used to purchase a life insurance cover. In case, the insured passes away unexpectedly during the tenure of the policy, a ULIP offers the sum assured to the nominee just like other life insurance policies

  1. Tax Saving 

One of the main reasons why ULIPs are so popular is that they are tax-saving. Under Section 80C of the ITA, investors can enjoy tax deductions up to Rs. 1.5 lakhs for the premiums paid for ULIPs. Not just the premiums, all returns from a ULIP are tax-free.

  1. Flexibility 

Investors can choose the fund in which they want to invest their premium. Depending on risk appetites, investment goals and prevailing market conditions, investors can move their investments between equities, debts and bonds or balanced funds. 

For instance, if the stock market is experiencing volatility, the investor can choose to shift the investments from equities to debt. Thus, ULIPs are flexible, helping smart investors enjoy good returns from their investments. 

  1. Partial Withdrawal of Funds is Possible 

Unlike other insurance products where your funds are locked-in for the policy tenure, ULIPs allow investors to withdraw a partial amount of their investments after the completion of the lock-in period. This is a massive benefit as it helps you meet emergency cash requirements. Make sure to check the exact amount of partial withdrawal before investing in a ULIP, as this amount varies from one insurer to another. 

  1. Long-term Wealth Creation 

As an investor, ULIPs are an excellent choice if you want to build your wealth over the long-term. Since the returns of ULIPs are dependent on prevailing stock market conditions, you can expect bigger returns, the longer you stay invested in the product. Fluctuations and volatility of the stock market can result in reduced performances in the short-term. When you stay invested for a longer duration, say 10 years or more, you can earn higher rates of return.

Hence, ULIPs are ideal for saving for long-term investment goals like a child's higher education, retirement planning, and so on.

Now that we have seen the benefits of ULIPs, let’s take a look at how it works. 

How do ULIPs Work? 

Though an insurance product, a ULIP offers more than life protection. It’s a goal-based investment tool that individuals can use to meet their various financial goals. Just like regular insurance plans, you have to pay premiums for your Unit Linked Insurance Plan. The only difference here is that only a portion of your premiums go for life insurance coverage, while the rest is invested in a variety of funds. 

The insurer pools money from all policyholders and invests it into a diverse array of funds, as per the choice of individual policyholders. All investors are allocated a certain number of units that are in proportion to the amount they have invested. The value of each unit is known as NAV (Net Asset Value). The NAV value increases or decreases depending on the change in the value of the underlying assets. If you want to withdraw the corpus, either entirely or partially, the corresponding amounts of units are sold.

Top 5 Unit Linked Insurance Plans in India

Nearly all the life insurance companies in India offer unit-linked insurance plans. With so many different plans available in the market, finding the right one that offers you maximum returns is a mammoth task. Worry not, in this section, we list out the top ULIP plans in India for 2020, helping you choose the right one that works best for you.

1.     SBI Life Wealth Assure

The SBI Life Wealth Assure is a single-premium unit-linked insurance plan that offers returns as well as life coverage. This plan offers:

  • Security – to protect your family’s financial future in case of any eventualities

  • Flexibility – choose how you want to invest the premium amount

  • Affordability – pay one-time premiums and enjoy long-term benefits

  • Liquidity – partial withdrawals are allowed from the sixth policy year

Salient Highlights of the Plan

  • One time premium payment

  • Easy liquidity with partial withdrawals

  • Choose from several types of funds based on your risk appetite

  • Enhance coverage with accidental death benefit

  • Enjoy market linked returns on investment along with insurance cover

2.     Aegon Life iMaximise Secure Plan

iMaximize is an online ULIP plan from Aegon Life that offers the double benefits of life insurance along with market linked returns. The plan offers huge flexibility, making it an ideal choice for both first-time investors as well as market experts. One of the biggest advantages of choosing this plan is that there are no allocation charges, helping you maximise the returns from your investment.

Salient Highlights of the Plan

  • Triple Benefits pay-out option offering your financial assistance in crucial milestones of your life

  • Choose from 6 unit-linked funds based on your investment objectives

  • Start your investments with just Rs. 2000 per month

  • Easily switch your premiums from one fund to another based on your investment objectives

  • Withdraw up to 20% of the accumulated fund value after five years of investment

  • Top up your investments with periodic additions to premiums

3.     IPru Signature

The ICICI Prudential Signature is the newest ULIP offering from ICICI Prudential. The plan offers flexible investment options along with life insurance in a single policy. The entire premium value is allocated to the funds of your choice, and the plan can be easily purchased online with a few clicks.

Salient Highlights of the Plan

  • Financial protection for your family, even after your death

  • Low charges – The entire premium is allocated to the funds of your choice

  • Loyalty Rewards – Receive additional bonuses just by staying invested in the plan

  • Whole Life Cover – Enjoy life coverage for up to 99 years with the whole life cover

  • Abundant Flexibility – Choose from four different fund options across equity, debt and balanced

  • Switch between funds without any extra charges

  • Get regular dividends from the plan with systematic withdrawal option

  • Avail existing tax benefits under Section 10(D) and Section 80 (C)

4.     HDFC Click 2 Wealth

The HDFC Click 2 Wealth is a popular ULIP plan that comes with three investment options – invest plus option, premium waiver option, and golden years benefit option. You can choose the required policy type based on your specific requirements.

Salient Highlights of the Plan

  • Maturity Benefit – On survival after the policy term, the fund value is paid to the policyholder

  • Death Benefit – On premature death of the policyholder, the sum assured is paid to the nominee(s)

  • Partial withdrawals, fund boosters, systematic transfer and settlement option are the other key features of this plan

5.     PNB MetLife Smart Platinum

The PNB MetLife Smart Platinum is a unit-linked insurance plan that helps you build your portfolio via six different funds. The minimum entry age for the plan is 7 years while the maximum entry age is 70 years.

Salient Highlights of the Plan

  • Enjoy life coverage up to the age of 99 years

  • Choose premium paying term of 5 years, 10 years or whole term based on your preferences

  • Manage investment risk with auto-rebalancing option

  • Enjoy partial withdrawals after the fifth year

  • Assured death benefits and maturity benefits


Take Advantage of ULIPs to Meet your Long Term Financial Goals and Insurance 

As you can see, ULIPs have a distinct USP – it offers both insurance and investment in a single product while helping you save taxes. Make sure to compare the different ULIPs available on the market and pick the best one that fits your wealth creation objectives.