Last Updated on Apr 25, 2023 by Harshit Singh
Unit Linked Insurance Plan or ULIP is a popular life insurance option for investors looking to secure the future that also serves as an investment vehicle to help you meet long-term financial objectives. Investing in both – life insurance and market-linked securities, ULIP provides you the flexibility to invest in equity, debt, or a combination of both, along with the benefits of life insurance, which are broadly missing in other plans.
In this blog, we will explore the best ULIP plans in India, including the types and more.
Table of Contents
What is a Unit Linked Insurance Plan (ULIP)?
ULIP is a type of insurance product that merges the advantages of both insurance and investment in a single policy. In addition, ULIP funds provide life cover, a significant benefit compared to conventional wealth creation instruments, and aid in growing your wealth.
Types of ULIP plans
Here is the list of different types of ULIPs that invest in various funds.
Equity
In this type of ULIP plan, the investor’s funds are utilised to acquire equity shares of one or more companies. As equity investments are directly linked to fluctuations in the financial markets, they are considered riskier. However, they also offer a higher potential for growth. Therefore, ULIPs investing in equity are more suitable for investors with a high-risk appetite willing to take risks.
Debt
In debt ULIP, the funds are allocated to debt instruments, such as corporate bonds, debentures, government bonds and securities, and fixed-income bonds. These instruments have a moderate to low risk, providing security to investors. The returns associated with them are also modest.
Liquid funds
These ULIP plans are ideal for accomplishing short-term financial objectives. They invest the investors’ funds in highly liquid money market instruments like certificates of deposit (CD), treasury bills, and call money. Unlike other ULIPs, these funds typically have a shorter maturity period, ranging from a few weeks to several months. It is a secure investment option for individuals with a low tolerance for risk.
Balanced funds
To minimise risk, balance funds invest in a combination of equity and debt instruments. By distributing the ULIP investment between equity and fixed-income debt instruments, the risk is spread out across high-risk and low-risk investment options to provide a more steady and less volatile investment.
Cash funds
This ULIP policy invests in extremely low-risk cash funds instruments like market funds, term deposits, and cash deposits. Although these ULIPs have the lowest returns compared to other ULIP investments, the risk involved is also negligible. Hence, they are an excellent option for risk-averse investors who want to eliminate the risk as much as possible.
ULIPs based on wealth creation
ULIP plans are also categorised based on their ability to generate wealth, with some plans explicitly designed to maximise return on investment. Below are some of the ULIP plans explained that primarily focus on wealth creation –
- Single premium and regular premium ULIPs – Single ULIP plan requires a one-time payment, while regular premium ULIP allows periodic payments throughout the plan’s tenure.
- Life-staged ULIPs – This ULIP invests in a mix of equity and debt instruments, with a higher proportion towards equity initially. As the investor ages, the proportion shifts towards debt for stable returns and wealth preservation.
- Guaranteed and non-guaranteed ULIPs – Guaranteed ULIP plan aims to preserve capital by limiting market risk and investing a small portion in equity. Non-guaranteed ULIPs prioritise wealth creation by allowing greater equity investment with higher yet volatile returns.
5 best ULIP funds in India (2023)
| ULIP fund | Entry age | Minimum premium (Rs.) |
| HDFC Life Click 2 Wealth | 0 to 60 yrs | 1,000 |
| ICICI Prudential Signature | 0 to 60 yrs | 2,500 |
| Aditya Birla Sun Life Fortune Elite Plan | 1 month to 55 yrs for five pay, up to 65 yrs | 3,300 |
| SBI Life eWealth Insurance | 5 to 60 yrs | 2,000 |
| Max Life Platinum Wealth Plan | 91 days/60 yrs | 16,660 |
HDFC Life Click 2 Wealth
HDFC Life Click 2 Wealth is the top-performing ULIP fund due to its free switching option with minimal charges and a choice of 11 funds (equity, debt, and hybrid) for maximum returns. In addition, the plan has three options: Invest Plus (insurance and investment), Premium Waiver (future premiums paid in case of death), and Golden Years Benefit (life cover till 99 yrs for retirement planning).
ICICI Prudential Signature
ICICI Prudential Signature is suitable for new and regular equity investors, offering wealth creation and retirement planning benefits. It provides a choice of 15 funds and four portfolio strategies, including target asset allocation, trigger portfolio, fixed portfolio, and lifecycle-based portfolio strategies.
Aditya Birla Sun Life Fortune Elite Plan
Aditya Birla Sun Life Fortune Elite Plan offers a balanced mix of insurance and investment corpus with three investment options: Systematic Transfer, Return Optimizer, and Self-Managed.
Policyholders can top-up premiums anytime during the policy term. In addition, the plan includes maturity and death benefits and guaranteed additions of 2% of the total premiums paid in the last five years.
SBI Life eWealth Insurance
This ULIP scheme offers dual benefits of life coverage and wealth creation with a monthly premium as low as Rs. 2,000. In addition, the plan ensures automatic asset allocation to minimise risk by reducing exposure to equity funds and diverting funds to debt instruments as the policy term progresses. It offers two ULIP options: Growth (assets move from equity to debt and money market) and Balanced (higher exposure to debt and money market investments).
Policyholders can make partial withdrawals after six years and two withdrawals annually after ten years, with the first withdrawal free and subsequent withdrawals charged at Rs. 100.
Max Life Platinum Wealth Plan
This plan is ideal for high net-worth individuals seeking comprehensive life coverage, with an annualised premium of Rs. 2 lakh and coverage of 10 times the premium. It also offers the option to enhance coverage with the Life Partner Care rider. The plan offers six types of funds and two fund strategies: Systematic Transfer Plan and Dynamic Fund Allocation. Note that policyholders can choose only one strategy, not both.
Benefits of investing in the ULIP scheme
Here are some of the benefits of investing in ULIP schemes –
- Flexibility and control of your money through fund switch, premium redirection, partial withdrawal, and top-up.
- Encourages regular and disciplined savings, which is important for long-term financial planning.
- Potential for higher returns through equity and debt funds to achieve life goals.
- Protective benefit of life cover for your family’s financial security.
Disadvantages of investing in the ULIP scheme
Investing in ULIPs may carry certain drawbacks, such as –
- ULIPs are not as beneficial as buying life insurance and a mutual fund plan separately.
- Certain charges along the ULIP plan can compromise the returns in the end.
- Returns in ULIPs are volatile due to the equity element, a common feature of any investment with an equity element.
Tax benefits associated with ULIP
ULIP investments are eligible for tax deductions under section 80C of the Income Tax Act up to a limit of Rs.1.5 lakh. Additionally, the returns obtained from the policy are exempt from taxes upon maturity, as per section 10(10D) of the Income Tax Act.
Conclusion
ULIP schemes offer life insurance benefits and potential returns from mutual funds. However, drawbacks such as charges and volatility should be carefully considered before investing. Therefore, it is important to weigh the pros and cons before investing in ULIPs.
FAQs
What is the minimum lock-in period in the ULIP scheme?
Unit Linked Insurance Plans have a five-year lock-in period, preventing the policyholder from withdrawing or liquidating the fund’s assets.
How is a ULIP fund different from a mutual fund?
ULIPs combine insurance and investment, providing wealth generation and security for the long term. They qualify for tax deductions under Section 80C, and death benefits are tax-free. In contrast, mutual funds are investment products that offer the potential for long-term returns. ELSS funds provide tax deductions up to Rs. 1.5 lakh under Section 80C.
What are the risks associated with ULIPs?
ULIPs carry risk based on the attached fund type, being riskier than other investments, like ELSS. In addition, compared to standalone plans, ULIPs are more expensive and carry greater risks due to high costs.
What are the costs associated with ULIPs?
ULIP plans have a few charges, including premium allocation, fund management, mortality, policy administration, switching, and surrender charges.
– Mortality charges are based on age and health.
– Surrender charges are levied for premature withdrawal.
– Switching charges are applicable when switching between funds.
As an investment fanatic, I’ve dabbled in early-stage startups, mutual funds, gold, stocks, smallcases, and real estate to identify which assets generate the highest ROI. At Tickertape, I’m dedicated to presenting my learning and providing insightful suggestions to help my readers make sound investment decision.
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