Understanding ULIPs: A Complete Guide to Unit Linked Insurance Plans

Washington, DC, May 09, 2024: We love it when a product is multipurpose. It helps us rationalize better, doesn’t it? So when it comes to investing and retiring, we tend to look for options that provide us safety and capital appreciation. One such tool that comes to my mind is ULIP. The ULIP full form is a unit-linked insurance plan.

While we have elaborated to provide the ULIP full form, let us understand what ULIP does. A ULIP is an investment option that provides you coverage for your life and allows you to invest money through equities, debt, and or a hybrid version. This coverage is essentially a life insurance policy that helps your loved ones in case you meet with an accident or an untimely death.

Let’s deep dive and understand ULIP full form more clearly:

1. Investment amount: The investment amount is dependent on your policy. However, the average policy amount of a ULIP begins at around ₹24,000 per annum. The premium that you pay goes toward insurance coverage, and the balance amount goes toward the investment portion.

This investment portion can be divided into a high-risk, balanced-risk, and low-risk portion of the fund.

2. Tenure: The tenure of the ULIP full form depends on your goals. However, the average tenure of your ULIP full form is around 20 to 30 years.

Based on how ULIP policies are structured and amended, they now operate similarly to how a fund house operates mutual funds. The benefit is that the mortality amount of your policy will be added toward your NAV from the 11th year onward based on how your ULIP full-form policy is structured.

3. Taxes and benefits: A ULIP offers many tax benefits, including exemptions and tax-free returns. The premium you pay toward your ULIP policy is exempted under the Income Tax Act of 1961, allowing you to save up to ₹150,000. In addition, the maturity benefits of your policy are not taxed under section 10(10D) of the Income Tax Act.

4. Managed investments and returns: 

The ULIP policy you invest in takes away the headache of managing investments actively. A fund manager reviews the investment policy for your ULIP. The fund is operated and set up by IRDAI. If you stay invested for a long time, you will create a good amount of wealth over time.

Your investment portion is tracked by NAV, and your fund manager will send you monthly updates that will allow you to stay updated on your ULIP in a full-form way.

How to choose the right ULIP for you?

The ULIP policy should be based on the premium you can afford. It is also dependent on the tenure you are looking at and the type of risk you can take. The risk capacity can be easily calculated if you learn who your dependents are and if you are the sole breadwinner.

You can always ask an expert for advice to make better investment decisions.