Unit Linked Insurance Plans – Complete Guide

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Unit Linked Insurance Plans (ULIP): Complete Guide

 Unit Linked Insurance Plans (ULIP): Complete Guide

In addition to traditional plans like endowment and money back life insurance policies, you may consider buying a Unit Linked Insurance Plan (ULIP). Owing to the balance of investment and protection that a ULIP investment offers, these plans have now become one of the most popular options that policy buyers look out for. However, before diving into the details, it is only fair to first answer the most common question: What is Unit Linked Insurance Plan?

It is a type of life insurance product that includes life cover as well as an investment option. A portion of the premium is invested in various products such as mutual funds, shares, or bonds. You may choose between risk cover and investment as per your needs and preferences. There are numerous advantages of ULIP that can help the policyholder bear not only the fruits of their ULIP investment but also enjoy the tax benefits. This is because under section 80C unit linked investment plan allows the policyholder to avail themselves of tax exemptions.

Continue reading this detailed guide on unit linked investment plans, the different advantages of ULIP, how this plan is useful, and how to invest in ULIP plans.

Unit Linked Insurance Plans - Benefits of investing in ULIPs

What is Unit Linked Invest Plan, and how does it work?

A Unit Linked Insurance Plan (ULIP) encompasses both investment and insurance. Through ULIP, you can get the benefit of generating wealth along with a life insurance cover, which helps you achieve your long-term goals. These goals can include - retirement planning, children’s education, marriage, etc. In this policy, the insurance company will allocate a portion of your investment towards life insurance and the other into a fund based on debt, equity or both.

The insurance company will have fund managers who will manage your investments. Therefore, the investor will not need to spend time tracking their investments made through this plan. Buying a ULIP plan allows you to switch your portfolio between debt and equity depending on your risk profile and your knowledge about the market’s performance. The flexibility to switch between instruments is a huge benefit for investors who want their funds to perform better.

Benefits of ULIPs

Most insurance companies offer different types of plans. Based on your needs and risk appetite, you must select the right ULIP product. Here are five benefits of ULIPs:


Most plans allow you to choose the amount of life coverage and the premium amount.
Additionally, you may switch between different fund options as per your needs and choices.

Minimum guaranteed returns on pension funds

Insurance companies offer pension ULIPs, which offer a minimum guaranteed return on your investment. This reduces the risks associated with market volatility.


You can easily view and track the investments in which your money is invested. Moreover, you may track the performance of your plan without any hassle. Insurance companies also provide information on all applicable charges and your net investment to help you make informed decisions.

Systematic investments

ULIPs are an excellent way to inculcate investment discipline. Such plans allow you to invest smaller amounts over a period, have regular savings, and reduce overall cost through rupee cost averaging. For example, when the market is high, fewer units are purchased, but you can buy more units when the market falls. Therefore, the average cost of your total investment reduces.


Unlike traditional insurance plans that provide either maturity or death benefits, you do not have to wait for the entire period to procure your money. You may exit your investment five years from the date of purchase, or you may surrender your policy without incurring any charges or expenses.

Uses of ULIPs

When you invest in plans like the Kotak ULIP fund, you can plan and achieve various life goals like the one mentioned below:

Retirement planning

Fortunately, more people today understand the importance of planning their retirement. Scientific developments have increased life expectancy, which makes it necessary to ensure you have sufficient funds to last you through your retirement. Increasing healthcare expenses due to rising inflation also makes it important to build a sizeable retirement corpus.

Policies like the Kotak ULIP fund are an excellent product to include in your retirement plan. A good ULIP plan will help you build a retirement corpus in the long run.

Some portion of the premium may be invested in shares. Historically, stock markets have delivered higher returns in a longer duration, making ULIP an excellent product. It is recommended that you invest early to assume higher exposure in the equity market. As you age and get closer to your retirement age, you may move your investment to safer products like bonds. Further, when you retire, you may choose immediate or deferred annuity at your convenience.

Secure the future of your children

Education expenses are constantly rising. The cost of pursuing higher education in the future will be significantly more than the current expenses due to inflation. Therefore, you must invest in a way that not only delivers returns but also provides inflation-beating profits. Unit-linked child plans invest your money in the stock markets, which has the potential to deliver higher returns, which in turn is beneficial to secure the future of your children.

Meet critical milestones

You may require funds to meet certain milestones such as children’s higher education, wedding, or a business venture. ULIPs allow you to withdraw money partially to meet fund requirements at various stages in your life. This ensures you have funds when the need arises and do not face any financial difficulties to meet these critical milestones.

Understand your investment horizon

If you want to accumulate funds to meet goals such as children’s education or your retirement, you may invest for the long term. When you have a longer investment horizon, you can assume equity exposure, thereby enabling you to earn higher returns.

Assess your risk level

Online calculators can help you assess your risk appetite and make the right choice. If you are unwilling to assume higher risks, you may invest in safer products like bonds.

On the other hand, if you are a high-risk taker, you may invest in shares.

If you find the concept of ULIP a bit more confusing than others, you always have the option to use online calculators. These calculators will help you understand everything you need based on the inputs you give.

Some helpful tips for meeting your life goals through ULIPs

Top-up your investment

You may pay the premium monthly, quarterly, half-yearly, or yearly as per your financial situation. If you have access to some funds through a bonus or other sources, you may consider topping up the investment amount. This enables you to accumulate more funds in the long run.

Assume higher risks

If you receive an income hike, you may assume higher risks to benefit from the opportunity of making more returns. An online calculator may help you assess whether a higher risk is the right decision or not. ULIPs allow you to switch between funds, making it simpler to assume higher risks through a plan that is more oriented towards equity markets.

Switch to low-risk funds towards maturity

Once your life goal is two or three years away, it is important that you reduce the risks associated with market volatility. Investing in equities as your goals draw closer is not advisable. Rather, it is recommended that you move to low-risk investments to safeguard your capital. The objective is to secure the accumulated corpus and not expose it to an adverse movement in the equity market that may wipe out all your gains.

Investing in ULIPs is quick and simple, and the entire procedure can be completed online. However, it is recommended that you evaluate all the different plans offered by various insurance companies before making your choice. Additionally, using an online calculator and other resources to understand more about the different plans will help you make an informed decision to buy ULIPs online.

What are the risks of a Unit Linked Insurance Plan?

When you purchase ULIP, there is an inherent risk associated with the market conditions. Therefore, it is important that you consider your requirements and risk profile before taking any decision. Additionally, you must consider the future fund requirements and choose a plan that best suits your needs. A ULIP is appropriate for all types of individuals to meet various financial goals such as children’s education, your retirement, or children’s wedding. In addition to providing financial security through life cover, ULIPs offer the benefit of earning higher returns through market-linked investments. Furthermore, the premium paid on the ULIPs is eligible for tax deductions of ₹1.5 lakh, as per Section 80C of the Income Tax Act.


1. What should one keep in mind while investing in ULIP?

Here are some things that you must keep in mind when investing in ULIP:

  • Buy a ULIP to fulfil long-term goals like retirement plans, children’s education, marriage in the family, etc.
  • Analyze your risk profile, before going ahead with this plan. Debt funds are best for low-risk profiles, and equities are best for high-risk profiles.
  • Purchase the product online to reduce the commission cost and understand better investment opportunities.
  • When your plan reaches maturity, you must dilute your equity exposure and transfer the funds to debt funds.

2. What are some advantages of ULIPs?

Some of the advantages of buying a ULIP plan are:

  • A ULIP option offers a wide range of low, medium and high-risk investment options through different funds available under the same plan. You will have the flexibility to opt for the plan that fits your risk profile.
  • You get the investment value, expected return rate, and the changing structure for the entire policy tenure before purchasing the product.
  • If you are dealing with an emergent situation, you get the option to make a partial withdrawal from this plan. This is applicable after the first five years of the plan.
  • You can inculcate a habit of saving with this plan.
  • The premiums paid on this policy are tax exempted as a part o fSection 80C deduction.

3. What are some important features of ULIPs?

Some of the features of ULIP are:

  • A ULIP will provide you with the benefits of life insurance along with insurance coverage
  • You have the opportunity of investing, depending on your risk profile.
  • You can make the policy’s premium payment through different payment plans like monthly, semi-yearly, or yearly. You can also opt for the single payment plan where you only have to pay once for the plan’s entirety

4. How to choose the best ULIP plans?

  • Pick the plan according to your financial goals.
  • Opt for the required amount of life insurance cover.
  • Go for a long-term plan.
  • Check the tax benefits.
  • Learn about the different charges associated.
  • Read about the features of the other plans available and select the one that best suits you.

5. What are the tax benefits of ULIPs?

The premium payments made on a ULIP plan are eligible for deduction under Section 80C up to a maximum of ₹1.5 lakhs during a year. Further, this plan’s maturity benefit is eligible for tax exemption under Section 10 (10D) of the Income Tax Act

6. How to claim tax on ULIP?

You must pay your premiums regularly, and should continue the ULIP plan to avail the tax benefits. If you discontinue the plan before five years, you cannot claim any tax benefit. If the premium paid on policy is less than 10% of the sum assured during the policy tenure, the maturity benefit will be exempt from tax. To claim the tax on the plan, you can visit the income tax website and opt for claiming benefits.

7. What does a ULIP checklist have?

  • Read charges associated with the plan.
  • Consider the past performance.
  • Understand the benefits provided by the plan (death benefit, mortality cost, etc.).
  • Understand the asset allocation and switching costs associated with the plan.

8. Who should invest in a ULIP?

You should invest in ULIP if:

  • You are looking forward to maximising your returns over a long tenure. You get the option of choosing from different investment instruments like debt funds, balanced and equity funds. Based on your risk profile, you can opt for any one of the options.
  • While planning for your retirement, you can consider ULIP plans as they are excellent instruments to grow wealth over a long period.
  • You can reduce your tax liability through these investment instruments.

- A Consumer Education Initiative series by Kotak Life

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