ULIP Plan – Unit Linked Insurance Plan

How does a ULIP Plan Work?

A ULIP plan works by dividing your premium into two clear parts. One part secures a life cover, which ensures your family members remain protected. The rest of the amount is invested in market-associated funds, i.e., equity, debt or hybrid options.

Such investments are held in the form of units, and each unit carries a Net Asset Value (NAV) that rises or falls as per market performance. Charges applicable under the policy are deducted on a regular basis, and the value of your fund keeps changing depending on how the selected funds perform.

At the time of maturity, you get the accumulated fund value, while in the scenario of any unfortunate event, your family members get the benefit as per the policy terms. This simple structure assists you in protecting your loved and dear ones and growing wealth simultaneously.

Premium Allocation

When you pay your premium, a portion is used to provide life insurance coverage throughout the policy term. The rest is directed into your selected funds, whether equity, debt or a mix of both.

The exact split can differ from plan to plan and may depend on your premium amount or policy structure. This transparent allocation lets you enjoy protection while your invested portion works toward long-term growth.

Investment Process

The amount invested in your chosen funds is used to buy units of those funds. Each unit carries a Net Asset Value (NAV), which keeps changing based on how the market moves. You can track such values on a regular basis to understand how your money is growing. ULIP even offer flexibility to switch between funds if you want to adjust your strategy, moving to equity for growth or debt for the purpose of stability. This keeps your investment well in line with your goals.

Dual Benefit

A ULIP offers two advantages in a single plan. First, it provides life insurance protection that keeps your family financially secure. Second, it gives you the chance to grow your money through market-linked funds. If something unfortunate happens, your family receives the insured amount or the fund value, depending on the policy terms. If you complete the policy term, you receive the value your fund has built over the years. This way, the plan safeguards as well as grows your money at the same time.

A Real-Life Scenario

Think of ULIP as a safety net that even doubles as a long-term savings partner. It takes good care of your family members if something goes wrong while it’s building a financial corpus for your future goals, i.e., education, home purchase or retirement. No matter whether life throws a challenge or stays on track, the ULIP structure ensures that you benefit in both scenarios through protection and long-term wealth creation depending on how the market performs in long term.

Scenario 1: In Case of an Unfortunate Event

In case the policyholder passes away in the course of the term of the policy, the nominee will receive the death benefit. Here, the amount is higher than the sum assured or the fund value, totally dependent on the rules and regulations of the policy. This ensures that the family members have immediate financial support at a tough time, offering stability when it is needed the most.

Scenario 2: On Maturity

In case the policyholder completes the full term of the ULIP, then they avail the accumulated fund value. This value is based on the present NAV of the units that is collected over the years. A few plans permit you to take the maturity sum in lump sum form. However, the others may offer the option of getting it in instalments. Either way, this maturity benefit can assist in supporting your future life goals.

Why Invest in ULIP?

ULIPs appeal to many as they club life insurance protection with market-associated investment growth in a single plan. You get the freedom to select your funds, switch between options and track how your money is performing.

At the same time, ULIP offer tax advantages and complete visibility into charges and returns. This blend of protection, flexibility, and transparency makes ULIP a practical choice for long-term financial planning.

1. Dual Benefits (Life Insurance + Investment)

A ULIP gives you two benefits under a single roof. One part of your premium is headed towards ensuring that your family stays financially protected through life insurance cover. The rest of the portion is invested in equity, debt or hybrid funds, giving your money a chance to grow.

This balance of security and investment potential helps you work towards long-term goals, whether it's education, a home, or retirement, while knowing your loved ones are safeguarded throughout the journey.

2. Tax Benefits

Premiums paid toward a ULIP might qualify for tax deductions as per Section 80C of the Income Tax Act, 1961* (old tax regime). In many scenarios, the maturity value or death benefit can even be eligible for tax exemption as per Section 10(10D) of the Income Tax Act, 1961* (provided the policy meets the required conditions).

Such tax advantages enhance the total plan's value. But it is essential to note that final benefits must depend on the applicable tax laws as well as individual eligibility at the time.

3. Flexibility

ULIP give you complete freedom to shape your investment in the manner you want. You can switch between equity, debt and hybrid funds depending on market trends/your risk appetite level. If you're going to invest more, then top-up options permit you to add additional investments to your policy.

Post the lock-in is over, partial withdrawals can assist you in managing urgent financial requirements with zero need for breaking your plan, having long-term time frames. This flexibility keeps you in control of your economic strategy.

4. Long-Term Investment

ULIP have a lock-in of five years. This sets the foundation for long-term savings. This time frame assists you in staying committed to your goals and benefiting from the compounding effect as markets fluctuate.

Remaining invested for longer even assists in smoothing out market ups and downs, endowing better growth potential. With the freedom to adjust your fund choices plus add top-ups, you can refine your approach as your goals and life stages change/evolve.

5. Transparency

One of the strengths of ULIP is their clear visibility. You can check out your fund value and NAV on a regular basis to track how your investment is performing.

Policy statements detail everything, charges deducted, units allocated and fund movement, so you are always aware of where your money is going. This level of openness assists in building trust as well as permits you to make well-informed decisions throughout the term of the policy.    

Who should invest in a ULIP Plan?

A ULIP plan is well-suited for those who want to blend wealth creation over the long term with the security of life insurance. It works best for those who can remain invested for several years and are comfortable with the idea of market-linked returns and its associated risks. As ULIP offer equity, debt and hybrid fund choices, they appeal to mid and high-risk investors looking for steady financial growth over the long term.

ULIP plan also works well for the one saving for major milestones such as a child's higher education, retirement, purchasing a home or building a long-term wealth corpus. The ability to switch funds, add top-ups and make partial withdrawals post the lock-in gives investors greater control over their financial strategy. ULIP Plan is also well-suited for those who prefer clear visibility on fund value, charges and performance, along with added tax benefits as per applicable sections of the Income Tax Act.

To sum up, a ULIP plan is a suitable option for anyone who wants discipline, flexibility and protection built into a single financial product.

This combination of features makes the ULIP plan a strong choice for people who value both financial growth and long-term security.

How to Manage ULIP Funds?

Managing your ULIP fund in an effective manner ensures that your investment remains in line with your financial goals, having a long-term investment time frame. Begin by tracking your fund performance on a regular basis through NAV updates and policy statements.

This assists you in understanding whether your selected funds are performing as expected. ULIP even permit you to switch between equity, debt or hybrid funds, endowing you with the flexibility to adjust your strategy depending on market trends or changes in your risk appetite level.

Another beneficial tool is premium redirection, which lets you allocate future premiums to distinct funds without disturbing your prevailing units. Post the lock-in, you can even use partial withdrawals for planned needs such as education or medical expenditure, ensuring you do not disrupt your goals with long-term investment frames.

Examining your ULIP on a periodic basis assists you in making timely adjustments and staying committed to building wealth for major milestones like retirement or your child's future.

Use Premium Redirection

Premium redirection lets you allocate future premiums to distinct funds while keeping your current units unchanged. This is beneficial when you want to shift upcoming contributions into better-performing or suitable fund options. By adjusting where your future premiums go, you can remain aligned with your financial objectives over the long term and adapt to changing market scenarios.

Set a Review Schedule

Examining your ULIP every quarter or half-year ensures you remain updated on how your investment is performing. Check out NAV movements, fund reports and policy statements to understand trends. Periodic assessments assist you in identifying when a fund switch or change in allocation might be necessary to remain on the correct track with your goals.

Align Switching with Goals

ULIP allow you to make the switch between equity, debt and hybrid funds. This gives you control over your investment strategy. You can simply switch to safer funds as you approach essential goals and remain invested in growth-oriented funds when you have a longer time horizon. Lining up switches with your life goals and risk comfort assists in managing your ULIP effectively.

How to Choose the Best ULIP Plans in India?

ULIP plans are popular among individuals who prefer both life cover and investment aspects included in a single plan. With so many plans available in India, you should consider the following factors to choose the best ULIP plan that suits your requirements.

Understanding financial goals and risk appetite

- Define your goal :

Why are you saving/investing? – Wealth creation, child’s education, retirement, tax saving, life cover or buying your dream home. This will help you choose a suitable tenure and type of funds.

- Assess your risk appetite :

You can choose funds basis your risk tolerance:

- Equity fund – High return potential and high risk

- Hybrid fund – Moderate return potential and Moderate risk

- Debt fund – Low return potential and Low risk

Check fund options and performance
 

Choosing suitable funds is a critical step to invest in ULIPs. ULIPs offer diverse fund choices like equity funds, debt funds and balanced funds. To get a better understanding of the fund’s performance it is recommended to check the funds past 5 and 10 year returns. For example, HDFC Life Discovery Fund (SFIN: ULIP06618/01/18DiscvryFnd101) available with HDFC Life ULIPs has delivered returns of 28.99%** in the past 5 years (as on 29th August,2025). The fund’s performance also depends on the expertise of the fund manger managing the fund, so you can check for the fund managers experience and background.

Low charges and fees
 

ULIPs come with various charges and fees impacting your returns. You should choose ULIPs with minimal charges. The charges are:

- Premium allocation :

Deducted from your premium before it gets invested. With HDFC Life Sampoorn Nivesh Plus you can reduce your premium allocation charges by investing at least Rs.1lakh (regular & limited pay option)

- Policy administration :

Charged for policy maintenance

- Fund management charges :

This goes towards the management of your funds. It is a certain percentage of your fund value.

- Mortality charges :

Goes towards providing life cover

- Surrender charges :

Charged if your withdraw before the your lock-in period

- Fund switching charges :

Charged for switching funds beyond the permissible number of switches.

- Top-up charges :

Charged in case you want to invest additional amount

How to Claim Tax Benefit on ULIPs?

A ULIP is a financial instrument that provides the dual benefit of comprehensive life coverage and wealth growth. Additionally, a policyholder can avail various ULIP tax benefits. Understanding taxation on ULIP is essential to claim these benefits correctly. A ULIP plan offers the following tax benefits:

• Tax Benefits on ULIP Premiums

You can claim deductions of up to Rs. 1.5 Lakh every year on premiums applicable under Section 80C³ of the Income Tax Act of 1961, subject to the availability of terms and conditions

• Tax Benefits on Maturity Amount

Maturity benefits existing under the ULIP policy are exempted under Section 10(10D)³ of the Income Tax Act, 1961.

• Tax-Free Payout

The life coverage amount paid out to the nominee under certain unfortunate incidents is subject to tax exemption under Section 10(10D)³ of the Income Tax Act. This thereby ensures complete payout to families and financial support during times of need.

ARN - ED/12/25/28844