The Most Commonly Asked Questions about ULIPs


For making wise financial decisions, it is important to think, research, and compare before buying any long-term products. With several products claiming to be the best in the business, it is important that you access your needs and find the best one for you. One product that has gained significant popularity in recent years is the Unit Linked Insurance Plan (ULIP).

What is ULIP? ULIP is a life insurance product that also comes with avenue of investing in different funds. It is designed for the long haul. The life insurance aspect works in a simple way, where you get a life cover for the tenure of the policy. The investment aspect is established in such a manner that they offer different opportunities for different investors.

If you are planning to buy a ULIP, there are several questions that may come to your mind. Here are some of the common questions surrounding the plan answered:

What does a ULIP offer?

Since a ULIP comprises two components, several individuals wonder what a ULIP is and how it functions. When an individual buys a ULIP, they get a life cover and an investment opportunity in one plan. The plan is designed from a long-term perceptive. Several ULIPs offer a high NAV (Net Asset Value) if the policyholder holds the plan for a long time. Net Asset Value is the unit price of your ULIP and it reflects how your fund is performing over the years.

Is ULIP a high-cost product?

One of the common myths associated with a ULIP is that it is an expensive product. There are definitely some charges associated with the plan, that the policyholders are required to pay. When ULIPs were initially launched, these charges were high, and hence, many people were not buying them. However, the insurance companies have changed that in recent years. The charges associated with new ULIPs are nominal,  while some have been eliminated as well.

Do I get any tax benefits?

In an essence, what a ULIP does is offer life insurance along with investment. Hence, for all the tax benefits that life insurance products offer, a ULIP offers them too. The premiums that you pay for a ULIP are exempt from taxes under Section 80C of the Income Tax Act. The maturity amount is also subjected to exemptions, given that certain conditions are met. Also, the sum assured that the nominee receives is exempt from taxes under Section 10(10D) of the Income Tax Act.

What if I want to change my fund allocation?

If your investments are not performing up to the mark or your risk appetite has changed over the years, you do not need to bear the loss or discontinue your investment. ULIPs allow you to switch your fund allocation anytime you want. This allows you to switch from debt to equity and vice versa anytime you want. Since ULIPs are market-linked funds, having the choice to switch your fund allocation allows you to make the most of changing market trends.

How do I track a ULIP’s performance?

Since ULIPs are market-linked investments, there is no fixed percentage of return that you will receive. The NAV of your ULIP is directly affected based on market performance. However, you can choose the risk that you will take. There are also some ULIP plans that offer guaranteed returns, but one has to pay additional charges for it. It is important that when you buy a ULIP; you research well and check the past performances before allocating your funds.

Is my money safe in a ULIP investment?

When you buy a ULIP, you, as an investor, decide the risk you want to take. There are several funds available to fulfil the needs of different policyholders. You can choose between debt, equity, and balanced funds based on your risk appetite. If you are looking for a safe investment, you can invest in a debt fund. If you will take risks, there are equity funds. To strike a risk-reward balance, there are balanced funds that comprise equity and debt.

These are some of the common questions that most policyholders ask before buying a ULIP. It is important to keep the above information in mind to make an informed purchase.

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