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Unit Linked Insurance Plans: Where investment meets insurance
Managing your family’s future and finances can be challenging. However, Unit Linked Insurance Plans (ULIPs) provide an answer in which life insurance and investment opportunities are brought together in one bundle. For example, Indian families planning their financial life can locate ULIPs as a choice that weighs security and increases assets simultaneously.
Let us look at how they function and why they have gained traction.
What are ULIPs really?
It is a hybrid financial product that integrates life insurance with investment. Basically, when you pay your premium, part of it buys life coverage, and the rest is invested in the funds you choose- equity (shares), debt (bonds), or a mix of the two. You can track the performance of your investment, which is impacted by market swings, with regular updates on the Net Asset Value (NAV).
You can track your ULIP performance regularly through the insurer’s online portal or mobile app, where the NAV of your chosen fund is published daily.
ULIPs are more open than standard insurance policies because of this degree of transparency.
ULIPs vs MFs – a quick comparison
| Feature | ULIPs | Mutual Funds |
|---|---|---|
| Purpose | Life insurance + investment | Pure investments |
| Tax benefits | Section 80C and Section 10 (10D) | Section 80C (ELSS funds only) |
| Lock-in period | 5 years | Varies; ELSS – 3 years, others – none or flexible |
| Charges | Multiple charges | Fund management fee only |
| Flexibility | Switch funds, partial withdrawals (after lock-in) | Higher liquidity and variety |
| Suitability | Ideal for investors seeking insurance + long-term wealth creation | Suitable for pure investment goals without insurance |
How does a ULIP work?
To understand better, let’s look at Priya from Bengaluru. She pays ₹5 lakh yearly for her ULIP. A portion of that goes into paying for the life insurance. The remaining is invested according to the asset allocation plan you choose. At the same time, her family has a ₹50 lakh safety net if anything happens to her.
Priya has the option to divide her investment among:
- An equity fund for higher returns
- A debt fund for stability
- A hybrid fund for balanced growth
Depending on market conditions, she can switch between these fund types, usually a few times a year, at no additional cost.
Why might ULIPs appeal to Indian investors?
| Feature | What it means for you |
|---|---|
| Flexibility | As markets fluctuate, you can transfer your investment between several funds. |
| Tax benefits | Save tax under Section 80C and enjoy tax-free maturity benefits under Section 10(10D) |
| Long-term focus | Good for planning children’s education or retirement |
| Five-year lock-in | Helps you stick to your savings plan |
Navigating ULIP costs
Understanding all the charges is necessary before selecting a ULIP. At the start, insurers charge a fee to manage your money, and they also have policy administration fees.
- Premium allocation charge: Deducted upfront from your premium to cover initial expenses.
- Policy administration charge: A fixed fee for managing your policy, deducted monthly or yearly.
- Fund management charge: A tiny portion taken out of your investment money to manage the portfolio.
- Mortality charge: Covers life insurance risk, varying by age and sum assured.
- Surrender/withdrawal charge: Fees applicable if you exit or withdraw funds before the lock-in period or specific terms.
Conclusion
ULIPs help people plan while providing protection now. Simply put, they allow Indian families to grow their finances and ensure their family’s safety.
If you take your time and understand how it works, this financial tool could help you accomplish several goals by paying only once a year.
Disclaimer: This article is for information purposes only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
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