Unit Linked Insurance Plans (ULIPs)
Market-Linked Investing With Life Cover
A Unit Linked Insurance Plan (ULIP) combines life cover with investment in market-linked funds of your choice. Your fund value moves with the markets, and the investment risk is borne by you as the policyholder. ULIPs have a five-year lock-in and suit long-term goals. MILES compares ULIPs from several life insurers on charges, fund track records and flexibility, and explains the risks in plain language before you commit.
Key Features Of A ULIP
Choice Of Funds
Invest in equity, debt, balanced or other funds offered by the life insurer, according to your risk appetite.
Fund Switching
Move money between funds during the term, with a number of free switches allowed under most plans.
Life Cover Included
Your nominee receives a death benefit as defined in the policy if you die during the term.
Five-Year Lock-In
Money cannot be withdrawn in the first five policy years, which encourages long-term investing.
Transparent Unit Statements
You can track units held, fund values and charges deducted through regular statements from the insurer.
Charge Comparison By MILES
We compare premium allocation, mortality, administration and fund management charges across several ULIPs.
What is a ULIP?
A Unit Linked Insurance Plan (ULIP) is a life insurance policy in which part of your premium buys life cover and the rest is invested in market-linked funds that you choose. The value of your investment rises and falls with the markets, so returns are not guaranteed.
ULIPs are a type of life insurance issued by life insurers registered with IRDAI. Unit linked insurance products are different from traditional insurance products and are subject to market risks. The investment risk in the investment portfolio is borne by the policyholder. Past fund performance is not a guide to future returns, and returns are not guaranteed unless the policy specifically states a guaranteed benefit.
How a ULIP works
- You pay a premium, either regularly, for a limited period or as a single payment.
- After allocation charges, the balance buys units in the funds you select, at the fund’s net asset value (NAV).
- Mortality and policy administration charges are usually recovered each month by cancelling units.
- Fund management charges are built into the NAV of each fund.
- At maturity, you receive the fund value. On death during the term, the nominee receives the death benefit as defined in the policy.
Charges to compare
| Charge | What it pays for |
|---|---|
| Premium allocation | A share of each premium kept by the insurer before units are bought |
| Mortality | The cost of the life cover |
| Policy administration | Running and servicing the policy |
| Fund management | Managing the funds, deducted within the NAV |
| Discontinuance | Applied if premiums stop during the lock-in, subject to IRDAI caps |
| Switching and partial withdrawal | Charged only beyond the free limits in the plan |
Charge structures differ significantly between plans. Low-charge plans can make a meaningful difference to fund value over fifteen or twenty years.
Lock-in, withdrawals and discontinuance
ULIPs have a lock-in period of five years from the start of the policy. You cannot make partial withdrawals or receive the surrender value before the lock-in ends.
If you stop paying premiums or surrender during the lock-in, the fund value, less any discontinuance charge, moves to a discontinued policy fund. It is paid out only after the lock-in ends, according to the policy terms. After the lock-in, most plans allow partial withdrawals within limits, and premium holidays or top-ups where the plan permits.
Tax treatment
ULIP premiums and proceeds may be eligible for tax benefits under the Income-tax Act, subject to prevailing tax laws. The rules for ULIPs have changed in recent years. In particular, maturity proceeds of policies where annual premiums exceed limits set by law may no longer be fully tax-exempt, and the treatment can depend on when the policy was issued. Because these rules change and depend on your circumstances, please check the current position with your tax adviser before investing.
Who needs it
- Investors with a horizon of ten years or more who accept market ups and downs
- People who want investment and life cover in one contract, with the discipline of regular premiums
- Parents saving for a child’s future, using plans with a premium waiver feature
A ULIP is not a replacement for adequate protection. For most families, term life insurance should provide the core life cover, with a ULIP added only for investment goals. If you prefer certainty over market-linked growth, compare it with guaranteed endowment plans.
How MILES helps
- Suitability first: we check your horizon, risk appetite and existing cover before recommending any ULIP.
- Compare life insurers: we compare total charges, fund options and fund histories across several plans.
- Plain-language risks: we explain the lock-in, discontinuance rules and the fact that you bear the investment risk.
- Ongoing reviews: we help you review fund choices and switching as your goal approaches.
- Claims and service: we support withdrawals, maturity and death claims with the insurer.
What we need for a quote
- Date of birth, gender and health details of the life insured
- Annual premium budget and premium paying term
- Investment horizon, goal and risk appetite
- Existing life cover and investments
Cover, exclusions and premiums depend on the insurer’s policy wording and underwriting. MILES Insurance Brokers Pvt. Ltd. is an IRDAI-licensed direct broker (Life & General, Reg. No. 954); the insurance is issued by the life insurer. Insurance is the subject matter of solicitation.