What You Should Know Before Investing in ULIP

When planning your finances, you must take the high inflation rate and life’s unpredictability into account. You need to invest in an instrument that helps you grow a fortune over an extended period and takes care of your dependents during tough times. A Unit-Linked Insurance Plan (ULIP) is one avenue that can prove useful. A ULIP policy combines a life insurance plan with investment options, making it a flexible product for everyone.

However, before you invest your hard-earned money in ULIPs, it is essential to learn everything possible about them. Here, we aim to help you with that.

  1. Why ULIP is an ideal investment instrument  

The best part of a ULIP is that it offers two benefits, life insurance cover and wealth build-up. You need to pay a premium regularly to the insurance provider to keep the policy active. The insurer invests your premium amount in equity, debt, or a combination of funds (after deducting applicable charges). The insurer permits you to choose how to allocate the capital into various funds as per your needs.

ULIP is a long-term investment product that helps create a substantial corpus that you can use to meet life’s most significant financial goals. With ULIP’s returns, you can buy a new property, fund your children’s education, and do much more.

  1. Where to invest the money

ULIPs let you choose among different investment avenues such as equity or debt funds. This flexibility allows you to invest based on your aspirations and risk appetite. For example, if you want higher returns by taking a few risks, equity funds can provide that. You can diversify your money between debt and liquid funds for comparatively lower risk with a moderate profit. By granting more control over your assets, ULIPs make it easier for you to make sound investment decisions.

  1. Estimating the returns

ULIP’s returns primarily depend on the financial market’s performance. So, it is not always possible to predict how much growth you can expect accurately. However, ULIP returns in 10 years, or longer can be significant. As ULIP is a long-term investment instrument, it is essential to stay invested over an extended duration to create considerable wealth.

  1. Understanding the financial market 

As ULIP’s performance depends on the market, it always helps if you know how it works. However, it is not mandatory to be a financial expert to invest in ULIPs. Insurance companies have experienced fund managers who handle the investment as per your goals. With their guidance, you can relax and watch your money grow.


  1. Payouts

The life insurance part of a ULIP policy offers a death benefit to policyholder’s nominees if an unfortunate event leads to his or her death. ULIPs also provide maturity benefits, which you receive at the end of the policy tenure.

  1. Tax benefits

Section 80C of the Income Tax Act, 1961 makes the premium paid tax-deductible up to INR 1.5 lakh per year. Additionally, the death benefit is entirely tax-free as per Section 10 (10D) of the Act. Also, under this section, the maturity benefits are tax-exempt for ULIPs bought before February 1, 2021. If the policy is purchased after that, you have to pay a long-term capital gain tax on the return if your yearly premium is over INR 2.5 lakh.

  1. Fund value

You can check the ULIP’s Net Asset Value (NAV) regularly to know the fund value and how it is performing. You can make an investment decision based on that.

Now that you understand the important aspects of a ULIP, you can purchase a policy from the insurer’s website. It is wise to find the top-performing ULIP funds before investing to increase your chances of getting attractive returns.

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