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What is ULIP and Its Benefits?

ULIP stands for Unit Linked Insurance Plan and is an insurance product that combines protection with investment by offering market-linked and tax-saving investment opportunities.

  • Feb 03, 2023

You live in a world where everything undergoes constant evolution. In this dynamic, ever-changing environment, your financial requirements fluctuate regularly, making it challenging to achieve the set goals. However, there are two crucial financial components to remember when things are constantly changing: protection and timely savings.

Key takeaways

Major benefits of purchasing a ULIP include:

1. Flexible options

2. Transparency

3. Liquidity

4. Regular and disciplined savings

5. Tax advantages

6. Risk dispersion

When planning your finances, you may find a lot of choices on the market that focus on these two parts of your finances separately. Fortunately, there’s a savings opportunity that comes with the added benefit of life insurance protection as well as capital growth: ULIP.

Read on to know what is ULIP and find answers to questions like why is ULIP insurance plan so popular and what makes ULIP investment profitable.

What is ULIP?

ULIP is a life insurance plan that invests your money over a longer period to build wealth for the future. High-grade market securities, both stock and debt, are used to fund the investment. As a result, ULIP is a valuable complement to your investment portfolio.

ULIPs are becoming increasingly popular due to fund options that allow consistent returns, considerably low levels of risks, or both. Promising insurance providers, banks, and financial institutions in India offer these plans, giving policy buyers a range of options to choose from. As a result, your money is guaranteed to earn good returns during the entire vesting time, along with life insurance protection for your near and dear ones.
In essence, a Unit-Linked Insurance Plan is a life insurance policy with market-linked investment growth. When you purchase this policy, a portion of your investment goes toward the policy premium. The remainder is invested in high-quality securities.

How ULIP work?

In a single plan, ULIPs are products that give you access to both a life insurance policy and an investment opportunity. Since life insurers are the ones who provide ULIPs, the payments you make to them when you purchase a ULIP are referred to as “premiums,” as ULIPs are primarily more akin to insurance plans.

Your premium is divided into an investment component and a mutual fund component, depending on whether you need equity, debt, hybrid, or another type of fund. Your investments are looked after by fund managers. Additionally, you are permitted to alter between various fund types to create the ideal ULIP for you.

What are the benefits of investing in ULIP?

ULIP plan is a one-time investment plan with tax benefits. But, in addition to ULIP tax benefits, you also get a long list of ULIP benefits.
Following are some major ULIP benefits.

1. Flexible options

ULIPs provide varying levels of high, medium, and low-risk investing possibilities through various funds within the same plan. They allow you to choose the sum assured or premium based on your needs and add to your portfolio with top-ups to take advantage of investment prospects that emerge from shifts in the external circumstances or your income flows.

2. Transparency

Before acquiring a plan, you are informed about the charges involved, investment value, and the expected rate of return over the policy term. The yearly account statement, quarterly investment portfolio, and daily NAV reporting will keep you informed about the status of your portfolio any time at your convenience.

3. Liquidity

ULIPs allow you to make a partial withdrawal in unanticipated future circumstances. By allowing partial withdrawals after the lock-in period, it allows you to stay prepared for any unexpected financial situation, saving you from the hassle of planning expenses at the last minute.

4. Regular and disciplined savings

ULIPs encourage you to save regularly, which helps you create a corpus for future requirements.

5. Tax advantages

Section 80C of the Income Tax Act, 1961 exempts the premiums paid towards the policy from taxation.

6. Risk dispersion

With ULIPs, you can profit from market-linked gains without having to invest in the stock market, as well as the added benefit of life insurance.


1. Who Should Buy a ULIP?

Families, individuals, or the elderly purchase ULIPs as part of a long-term asset accumulation and insurance strategy because the investment depends on risk tolerance and financial status. The insurer creates a sizable common fund out of the premiums paid by numerous policyholders.

2. Are ULIPs Good Investment?

Compared to other insurance products, ULIPs offer significantly superior returns. ULIPs place the funds in a variety of asset classes.

3. How to Choose the Best ULIP?

Investors with any risk profile and at every stage of life may find ULIPs to be the best option. However, there are some factors to take into account while selecting the best ULIP from the numerous options on the market. The following are elements to consider when selecting the best ULIP.

  • Get the right amount of life insurance
  • Establish your investment objectives
  • Know your level of risk-taking and make investment decisions accordingly
  • Calculate the insurer’s financial stability and fund performance
  • Compared based on cost-benefit criteria

4. How is ULIP Structured?

The investment possibilities of a unit-linked insurance plan are set up very similarly to mutual funds in that they combine investments with those of other participants. Consequently, a ULIP’s assets are managed with the intention of reaching a specific investment objective.

5. What Considerations Should You Make While Investing in a ULIP?

The top 6 things you need to know before investing are listed below:

  • ULIPs have flexible investment options
  • Ulips have a top-up option
  • Newer ULIPs do not have transaction charges
  • ULIPs are tax deductible under section 80C
  • Lock-in period ensures discipline
  • ULIPs are strong long-term investments

6. How Much of the Premium Money is Spent on ULIP Units?

Your premium in ULIPs can be invested with up to 100 percent of it. Depending on the ratio you select, the premium you pay is divided among various funds. Units are allotted according to your contribution after your premium has been distributed to the funds of your choice.

7. What is a ULIP NAV?

A unit-linked insurance plan’s (ULIP) or mutual fund’s net asset value (NAV) is the sum of its holdings less allowable expenses.

8. When should I invest in ULIPs?

A unit-linked insurance plan is an excellent investment at any time, just like mutual fund investments are. You can invest in ULIPs when the markets are up or down because they help withstand market volatility.

9. How to calculate fund value in ULIP?

The fund value is the total monetary value of the units that the policyholder owns. The net asset value (NAV) of each unit on a given day is multiplied by the quantity of units held to determine the fund’s worth on that day.


Investment in ULIPs does not only allow you to diversify your portfolio but also empowers you by offering a stable and dependable opportunity to fulfil all your financial goals. With a proper understanding of the market and well-planned investments, you can make the most of your ULIP plan.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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- A Consumer Education Initiative series by Kotak Life

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