Unit Linked Insurance Plans (ULIPs) by Kotak Life Insurance

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Unit Linked Insurance Plans

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In addition to traditional plans like endowment and money back life insurance policies, you may consider buying a Unit Linked Insurance Plan (ULIP). 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 the risk cover and investment as per your needs and preferences.

What is a ULIP, and how does it work?

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

The insurance company will have fund managers who manage the investments, and so 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 ability to switch between instruments is a huge benefit for investors who want their investment funds to perform better.

When you purchase a ULIP, there is an inherent risk associated with the market conditions. Therefore, it is important that you consider your requirements and risk profile before making the investment 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 INR 1.5 lakh according to section 80C falling under the Income Tax Act.

Most insurance companies offer different types of plans. Based on your needs and risk appetite, you must select the right ULIP product. Here are three 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 the market volatility.


You are able to 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 types of plans allow you to invest smaller amounts over a period. In addition to letting you save regularly, you are able to reduce your overall cost through rupee cost averaging. For example, when the market is high, lesser units are purchased. On the other hand, when the market falls you are able to buy more units. 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. ULIPs are liquid and you may exit your investment five years from the date of purchase. You may surrender your policy without incurring any charges or expenses.

Uses of ULIPs

When you invest in ULIPs, you are able to plan and achieve various life goals. These types of insurance plans allow you to achieve the following goals.

Retirement planning

Fortunately, more people today understand the importance of planning for their retirement. Scientific developments have increased the 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 make it important to build a sizeable retirement corpus. ULIPs are an excellent product to include in your retirement plan. A best ULIP plan will help you build a retirement corpus over the long-term. Some portion of the premium may be invested in shares. Historically, stock markets have delivered higher returns in the longer duration, which makes ULIPs an excellent product. It is recommended you invest from an early age 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. When you retire, you may choose immediate or deferred annuity as per 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 higher 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 for 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 as and when the need arises and do not face any financial difficulties to meet the critical milestones in your life.

Choosing the right ULIP is important to achieve your life goals. An online calculator is beneficial in helping you make the right choice. Here is how the online calculators work.

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 are able to assume equity exposure, thereby enabling you to earn higher returns.

Assess your risk level

The online calculator will assess your risk appetite to help you make the right choice. If you are unwilling to assume higher risks, you may choose to invest in safer products like bonds. On the other hand, if you are a high-risk taker, you may invest in shares.

Here are some tips that may be beneficial to help you meet 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 over the long-term.

Assume higher risks

If you receive an increase in your income, you may assume higher risks to benefit from the opportunity of making more returns. An online calculator may help you assess if assuming higher risk is the right decision or not. ULIPs allow you to switch between funds, which makes 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. 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 may be completed online. However, it is recommended 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 ULIP online

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

A Unit Linked Insurance Plan is an investment/insurance hybrid product that many insurance companies provide. This product will give you the benefit of both insurance coverage and earning returns from stock market investments. But there are some things that you must keep in mind when investing in a ULIP.

1. You must buy a ULIP to fulfil long-term goals like retirement plans, children’s education, marriage in the family, etc. This is because the investment instrument chosen for a ULIP plan is mutual funds, and mutual funds require a long time to earn good returns.

2. Before going ahead with this plan, you must analyze your risk profile. If you do not have a high-risk profile, you can go for debt funds, but you can go for equity investments if your risk profile is high.

3. You can buy these products through banks or agents. It would be better if you purchased the product online as it reduces the commission cost and introduces investors to different product options.

4. When your plan is reaching maturity, you must dilute your equity exposure and transfer the funds to debt funds.

5. Compare different products available in the market and choose your plan wisely.

2. What are some advantages of ULIPs?

A ULIP plan provides you with investment returns with insurance coverage. It is an efficient way to achieve your long-term financial goals. Some of the advantages of buying a ULIP plan are:

1. 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. These plans allow you to choose either the Sum Assured or the premium depending on your needs. They also give you the option of increasing your portfolio through top-ups for benefiting from investment opportunities.

2. You get the investment value, expected return rate and the changing structure for the entire policy tenure before purchasing the product. It is always better to understand a product you have chosen for investment. Apart from this, you also get the account statement, a quarterly investment portfolio with the daily NAV reporting, which will ensure that you are updated with your investment status at all times.

3. If you are dealing with an emergent situation, you get the option to make a partial withdrawal from this plan. This will be applicable after the first five years of the plan.

4. You can inculcate a habit of saving with this plan. This will help you build your wealth over the years.

5. The premiums that are paid on this policy are tax exempted under Section 80C of the Income Tax Act.

3. Features of ULIP

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

ULIP plans are one of the best ways to achieve your long-term financial goals. However, you must be mindful when selecting a plan. Some of the ways you can choose the best plan are:

- 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. Income tax benefits of ULIP

ULIP plans are one of the best tools for tax saving. 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. One more benefit is that this plan’s maturity benefit is eligible for tax exemption under section 10(10D). The premium amount must be lower than 10% of the sum assured for the tax benefit on maturity benefit. You must ensure that you continue the plan for five years to enjoy tax benefits from this plan.

6. How to claim tax on ULIP

You must pay the premiums on the plan 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 benefits. 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. ULIP Checklist

ULIPs are hybrid plans that provide you with the benefit of insurance coverage and investment returns. To select the best plan, you can follow the checklist listed below:

- 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.

Who should invest in a ULIP?

ULIPs are efficient for long-term investment plans. They provide the benefit of both insurance coverage and investment returns. You must invest in this plan if you are:

- Looking to maximize 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. By getting a ULIP early, you can accumulate a healthy corpus through your investments over time.
- You can reduce your tax liability through these investment instruments. The premiums you pay towards ULIP plans provide great tax benefits under Section 80C of the Income Tax Act. Apart from this, the death benefit paid through these plans is also tax-exempt.

- A Consumer Education Initiative series by Kotak Life


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