What Is ULIP? And Why Do People Invest In It?


Ranjan purchased a ULIP as soon as he started working in his new job. He was covered by his employer in the last position under the group term life insurance policy. But as soon as he changed the job, he thought that his family was not secure. Along with creating financial security, it was important that he also worked for the growth of income. With the two intentions and limited budget, Ranjan could only think of ULIP.

If you are equally interested in investing money to fetch high returns, you must also look for ULIP. So let us explore further what is in the life insurance policy?

ULIP is a double benefit life insurance policy. ULIP stands for Unit Linked Insurance Plan, which implies that the policy provides both insurance and opportunity for investment. In addition, the life cover that the ULIP offers is for the family’s security in case of any unfortunate event that might take place. 

A part of the premium under ULIP is used for life cover, while the other part is invested in a common pool. This pool is referred to as a market-linked fund like equity, debts, or a combination of both. 

The amount of investment that you make in ULIP gives you some units. These units have Net Asset Value that is calculated every day. As the fund is linked to the market, Net Asset Value (NAV) will increase or decrease.

If this is clear to you, let us read further the types of ULIP plans. 

Types of ULIP you can Invest in.

These are the different types of ULIPs you should know before investing.

  1. Equity: Equity investment funds are called high risk funds as they are directly linked to market risks. The potential of return is higher, but the risk is also attached to it. Those with a high risk appetite can invest in equity.
  2. Debt: Another type of ULIP is debt funds that include debentures, government bonds, corporate bonds, and fixed income bonds. These are low risk funds that are good for investment for the risk-averse.
  3. Balanced Funds: The funds that incorporate the characteristics of both equity and debt funds are called balanced funds. The risk is effectively spread between high-risk or low-risk investment options. The returns offered by the balanced funds are stable. 
  4. Liquid Funds: The liquid money market funds attract investors who have short-term goals. These individuals invest their money in treasury bills certificates of deposits.
  5. Cash Funds: The cash funds are the popular choice of highly risk-averse people. The returns offered in cash funds are the lowest among all ULIP options. The risk factor associated with the ULIP is also negligible. 
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Next, let us read the benefits of the ULIP.

Benefits of ULIP.

These are the top benefits that the ULIP plan will offer.

  1. The flexibility of investment: ULIPs provide a whole platform to the life insured, enabling them to invest in high, low and medium risk profiles. You can pick a plan depending on your risk absorption capacity. You also have the convenience of choosing the sum assured or premiums. Apart from this, you also have the flexibility to invest money when you have a lump sum.
  2. Liquidity: Only after the lock-in period of 5 years does ULIP allows you to have partial withdrawals. It is referred to as having the benefit of liquidity that enables you to encash the value in case of any financial emergency. The withdrawal is not allowed anytime before the lock-in period.
  3. Complete Understanding, Transparency: ULIP is often called a highly transparent life insurance policy. It allows the life insured to understand the fund in which the insurer will be investing the portion of premium money. The annual accounts, monthly statements and other information like NAV keep you informed about how the fund will perform or is expected to yield the returns.
  4. Regular Savings: The lifestyles are changing fast, making it crucial for individuals to think about how and why regular savings are meaningful. With ULIPs, you develop a regular saving habit to build a corpus in the near future.
  5. Tax Benefit: All the premiums paid towards ULIP are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. The total deduction allowed under the section is only Rs.1.5 lakhs.
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With ULIP, you can create wealth to attain your future goals. But for that, you need clarity over how much wealth you would require to survive in future. This is the concept that talks about wealth calculation.

Let us see what a wealth calculator is and what is the relevance of it.

What is a wealth calculator?

A wealth calculator is an online tool that shows you the amount of money (corpus) you have accumulated over the years. In addition, it tells the monthly amount that you will have to invest to create the corpus.

You can create wealth by investing your money in a life insurance policy like a ULIP plan. It protects your earnings as well as your investment. The insurance policy also covers your family’s financial crunch if the life insured dies during the policy term. 

Next, let us read why do people invest in ULIP?

Why do people invest in ULIP?

Investing in ULIP has always been attractive, especially among those willing to take the risk of investment. People invest in ULIP as:

Independence: The ULIP provides independence to the investors allowing them to make a choice of investments in the funds of their choice.

Switching funds: ULIP allows convenient switching to the investors. The individuals who look for high returns and can tackle the risk must choose equity funds. On the other hand, those who want to remain invested and think for safe returns can go for debt funds.

Affordable Premium: The premium under the ULIP is affordable. Individuals can buy it for their benefit.

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Life Cover: Other than the opportunity to invest and get returns, ULIP also provides life cover. If the life insured dies during the policy tenure, the nominee would get the benefit. This makes it a double security plan; hence people choose ULIP.

Conclusion:Investing in Unit-Linked Insurance Plan is not just for the perspective of getting returns, but it also provides life cover. ULIP offers the opportunity to create wealth. You can choose a ULIP based on your premium paying capacity and frequency convenience. Apart from the premium payment frequency, you can purchase a ULIP on life stages and keep the guaranteed returns. For more information on ULIPs, you can read here

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