Beginner’s Guide to ULIPs – Benefits and Advantages of Investing in ULIP


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Updated on Mar 07, 2023

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What is ULIP Plan and Its Benefits – Know Everything

It is very important to know what a ULIP plan is and what its benefits are before you decide to invest in the same.

The ULIP full form is unit-linked insurance plan. It can be described as a multifaceted insurance plan in the truest sense of the term. You can term it a combination of investment and life insurance. As a policyholder, when you invest in a ULIP you have to pay a premium regularly as you would do in all other kinds of insurance. However, over here only a part of the policy is used for the insurance coverage, and the remaining money is used for investment.

In ULIP insurance the insurers do so by pooling together money from all the policyholders and investing the same in various financial instruments. This includes both debt and equity instruments. In that sense, these policies are significantly similar to mutual funds. When you invest in the ULIPs you can get financial security that comes in handy in case of emergencies and you can grow your money too. So, come – let us know more about the ULIPs and why we should be investing in them.

Why You Should Invest in ULIP – The Benefits of Investing in ULIPs

You already know ULIP meaning. Now it is time to know the advantages that they can provide to you. They may be enumerated as below:

  • You get market-linked returns
  • You get life protection with savings
  • You get flexibility in investment
  • The premium structure remains the same
  • The charges are distributed evenly
  • You get tax benefits

When you invest in ULIPs you get an opportunity to earn returns that are linked to the markets. This happens because a part of the premium that you pay in these policies is allocated to market-linked investment instruments like equity and debt instruments. This is normally done in varying proportions though.

You already know what ULIP is. In that case, you would also know that a part of the premium you pay in these policies is used to provide you with the life coverage that is the primary necessity in these cases. In ULIPs, you can always switch to any form of investment based on your needs that may always be changing. The premium structure of these plans stays the same in all limited-term and regular premium payments. IRDAI (Insurance Regulatory and Development Authority of India) states that the charges in these policies are distributed evenly throughout the lock-in period of five years.

How to Select the Best ULIP Plans in 2022-23?

You already know what ULIP plan is but do you know how to select the best plan for your needs? Well, for that, there are a few things that you need to keep in mind. First of all, you must evaluate your needs when you are buying these policies. You need to be careful when you are selecting the cover amount. You have to stay invested in these policies even beyond the initial lock-in period. You should also get a plan that offers you the maximum tax benefits.

Who Should Invest in ULIPs?

You may think that a ULIP policy is not meant for everybody. It is definitely the right option for people who want to keep a close eye on their investments. This is something that you can do rather easily when you invest in ULIPs. This is also applicable to people who have a medium-to-long horizon for investment. At the same time, these policies are also suitable for people who are not averse to taking a risk with their investments. No matter what stage of life you are at you can always invest in the ULIPs.

Know The Funds Where You Can Invest Through ULIPs

You already know what ULIP stands for. In that case, you would also know that over here you can invest in different types of funds. These kinds are equity funds, debt funds, and balanced funds, which are also known as hybrid funds. In the case of equity funds, your money is invested in stocks of companies that are focusing on capital appreciation. There is a high risk in these cases. In the case of debt funds, which carry low risk, your money is invested in fixed-income instruments such as corporate bonds and government securities.

In the case of balanced or hybrid funds, your money is invested in fixed income instruments and equities. The risk level in this case is medium.

What is a ULIP calculator? 

You already know almost all that is to know about ULIP insurance. Now, it is important to make a proper estimate of the kind of money that you can make from such an investment. This is where a ULIP calculator comes in so handy by letting you make the calculations in this case. This also lets you compare and make the best decision for your money.

The Charges Applicable in ULIP Policy in India?

In the case of a ULIP policy, there are four charges that you should know of – charges for fund allocation, charges for managing the fund, charges for policy administration, and mortality charges. The allocation in these policies is normally done after these charges are deducted. The thing with the ULIPs is that they provide you with plenty of chances to create wealth in the long term. At the same time, these policies provide you with life coverage. So, in a way you are getting diverse benefits when you invest in these policies.

Also Read: Which is Better Endowment Or ULIPs-Features and Benefits


As we may have elucidated already, a ULIP insurance plan is structured pretty much the same way as a mutual fund is. Over here, the insurers pool money from all the policyholders and allocate them to various investment instruments in keeping with the preferences that the policyholders have. In the ULIP plans too you have dedicated fund managers who are taking care of the assets that are held by them. Their main aim is to help you achieve the specific aim you have in terms of investment. Over here, you can invest in various ULIPs or just one depending on what your investment goals are.

Also Read: ULIP vs. ELSS – which is a better investment option in 2023? | Benefits Of ULIPs Over Other Investments


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FAQs on Benefits of ULIP

What are the benefits of ULIP?

Below is a list of exclusive benefits offered by Unit Linked Insurance Policies (ULIPs).


Offer flexibility
Offer transparency
Encourage goal-based savings
Offer tax1 benefits
Offer Liquidity

Is ULIP a good investment option?

ULIPs offer some unique benefits, such as partial withdrawal, several tax benefits, and a choice of life cover. There is also premium protection even if this is a partially market-linked product.

Is ULIP better than FD?

Is ULIP better than FD? Yes, ULIPs are a better place to invest than Fixed Deposits. Apart from ensuring that your money is safe and providing you with life cover, they also give you a chance to earn by investing your money. This versatility is what makes them one of the best avenues to put your money in.

What is the disadvantage of ULIP?

ULIPs have a lock-in period of 5 years, before which you cannot withdraw your investments. Even if you surrender your ULIP within 5 years, withdrawal would have to wait until the lock-in period is over. Most insurers will offer you free switches of your funds up to a certain point.

Apr 22, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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