What are the benefits of unit-linked insurance plans?

Jan 8, 2019 by

Unit-linked insurance plans offer investment as well as insurance coverage. You can also take advantage of income tax exemption. The charges associated with an insurance plan vary as per the type of plan and the insurance company. There are ULIPs to take care of your children’s educational needs, wealth creation and retirement needs. Even though the insurance potential with the ULIP is lower than term plan, it offers many benefits which make it an attractive investment option.

Types of ULIPs

There are various kinds of ULIP offered by insurance companies. A part of the premium can be invested in various kinds of funds such as debt funds, equity funds, hybrid funds and money market funds.

Benefits of ULIPs

ULIPs and mutual funds are designed to fulfill your financial goals. ULIP can deliver better financial returns along with insurance cover. Hence, unit linked insurance plan offered by reputed companies has great demand.

  • Long-term investment option – Unit-linked insurance plans will fulfill long-term investment objective in the best possible way. They will deliver better returns than mutual funds coupled with tax benefits.
  • Fund switching option – Investors will be able to switch over from one fund to another fund in an effortless manner. The returns are based on the risk appetite of the customer.
  • Liquidity – As ULIPs are designed to fulfill the long-term interests of customers, there is restricted liquidity. You will not be able to withdraw funds before 5-years. A 5-year lock-in period will be applied for ULIPs. If you withdraw funds after 2 years, the income tax benefits will be reversed.
  • Charges – Various kinds of charges are levied on unit-linked policies such as mortality charges, administration charges, fund management charges and premium allocation charges. The charges are lower than other kinds of investment options such as mutual funds. There will not be entry load and exit load which happens with mutual funds.
  • Ease of investment – You can buy ULIP by paying the premium on a monthly, quarterly, half-yearly or annual basis. You can subscribe to the policy for at least 5 years so that you can enjoy financial benefits without any issues.
  • Portfolio disclosure – The insurance companies should disclose the portfolio to investors. The quarterly results will be revealed to customers so that the fund status and growth will be noticed by investors. There are ULIPs which disclose the information on a monthly basis.
  • Income tax benefits – The premium paid towards the ULIP will be exempted from the income tax under Section 80C. The maturity benefits of ULIP are exempted from the income tax under Section 10 (10D).
  • Loyalty bonus – For associating with the insurance company, the insurance company will provide loyalty bonus to customers. You can subscribe to a ULIP plan which offers loyalty bonus.

Selection of ULIP

You should choose ULIP as per your financial goals. The following types of unit linked plans are available in the market:

Wealth creation – The investment, as well as insurance cover, are available in a single product with ULIP. If you would like to build a large corpus to take care of your dreams, you can choose ULIP. You will let the insurance company manage your funds and there will be huge returns by investing on a long-term basis.

Childrens plan – The financial stability of your dependents will be protected by subscribing to a children’s plan. There are plans to fulfill the higher education needs of children. Even though the policyholder dies, the insurance company will make lump sum payout and regular payouts as per the terms and conditions of the policy.

Retirement plan – By choosing a retirement ULIP plan, you can build the corpus for your annuity plan. After the maturity, you will be able to buy annuity plan from the same insurance company or a different insurance company. The payout of the ULIP is tax-free in the hands of the policyholder or nominee.

Health insurance plans – The medical emergencies are met with the unit-linked health insurance policy. The unit linked insurance plan offers income tax exemption on the principal amount and the maturity proceeds as well. By increasing the premium, you can expect higher sum assured.

Why should you choose ULIPs?

There are several reasons to choose ULIPs. ULIPs offer greater flexibility in terms of investment and insurance coverage. You can increase the insurance cover as per the growth in your income. You can pay the premium as a lump sum or in installments.

It is possible to withdraw funds in a systematic way after the completion of 5-year lock-in period. You will want to pay LTCG (Long-Term Capital Gains) when you go for ELSS (Equity-Linked Savings Scheme). If the gains made in a financial year are more than Rs. 1 lakh, you should pay LTCG tax. The same is not applicable for ULIPs.

ULIPs offer unique investment potential with the triple tax benefit. There will not be a tax on the principal, earnings and the maturity payouts. The returns made from the ULIP are far better than mutual fund schemes.

You can buy more than one ULIP as per your convenience. Instead of choosing traditional insurance or pension plan, you can choose a market-linked plan so that there will be higher returns. The portfolio, returns and other data are readily available on the official website of the company.

Insurance companies offering ULIPs will work under the stringent guidelines of IRDAI. If there are any issues with the insurance company, customers can raise the issue and it will be resolved through the redress system in a systematic way.


There are various kinds of investment products. If you would like to participate in the market, it can be done directly or indirectly. There is great risk in participating in the stock market without financial expertise. Unit linked insurance plan is a convenient option as it can fulfill your insurance, capital appreciation and income tax benefits in the best possible way. If you go for a long-term investment, ULIP is the best option as returns will be higher than mutual fund investment.

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