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How to Choose Best ULIP Plans

ULIP/Unit Linked Insurance Plan has become a popular life insurance product in the Indian insurance market space. It not only provides the policyholder a financial security cover against life risk, but also offers sound investment options. Herein, the policyholder has the option to invest in a varied basket of qualified funds which invest in the likes of mutual funds, stocks, or bonds. Under this single integrated plan, the protection and investment components can be managed as per specific choices, risk appetite and needs of the life insured. In Unit Linked Insurance Plans (ULIPs), the investments are subject to capital market risks. Therefore, as a prospective ULIP buyer, you are well-advised to make your investment choices, post consideration of your appetite and need for risks.

Today, with the advent of the internet and comparison websites which are largely instrumental in helping first-time investors as well as seasoned buyers, getting the right insurance product isn’t very difficult. It would be wise to compare and buy different types of ULIPs online on an insurance comparison portal of high repute to check out the different features, terms and conditions online to align the same with your risk appetite. Before long, you will have smart investment cum protection insurance tools in your portfolio for meeting your life goals by getting the desired return on your investment.

How to Choose the Right ULIP

The first basic aim of choosing a successful investment product is to get the desired returns. ULIP offers a range of benefits and is one of the best investment options, if chosen correctly. ULIP works like a normal insurance policy where you will be required to pay the premiums as per the policy schedule. A portion of the premium will be invested towards the insurance component and the rest will be invested in markets to generate good returns. ULIP gives the freedom to the investor to choose the coverage amount so that their family is financially protected if the policyholder dies unexpectedly during the active policy term. In addition to this, ULIP also offers the policyholder a chance to earn from economic progress of market-related investments, instead of parking their funds in a regular insurance plan.

Based on capacity to handle risk

An important component of life and investment planning is to be extremely careful and aware of your risk taking capacity. The thumb rule is that you can take bigger risks in the earlier stage of life and your risk taking capacity decreases when you have dependents or start a family. There are other factors which may curtail your risk-taking capabilities like illness. Being aware of your risk taking capacity and stage of life will help in making better decision as to which kind of ULIP funds to go for. For investors who can take high-risk, equity funds will serve as a better option. Many life insurance plans are offering a range of ULIP funds in keeping pace with your risk appetite. These funds are backed by strong fund performance and are on track to help you meet your life goals. The investor should also check if the ULIP comes with free fund switching options or not. The fund switching feature provides an investor the advantage of copping with the market unpredictability by having the freedom to switch from one type of fund to another, as per the prevailing market conditions.

Based on personal investment goals

In order to successfully meet the desired life goals financially, an investor has to take clever investment decisions. The life goal can be anything from purchasing a new house to funding your child’s education, and all of it needs to be planned for. Hence, it is very crucial to first identify the life goal before selecting an appropriate investment. It will also help the investor calculate the time required for the same. For example, if the investor wants to purchase his/her dream car in the next 5 years, then it becomes easy to decide the amount of investment needed and plan the investment strategy successfully to reach to that goal.

Things to keep in mind to get the best ULIP Plans

Like all other forms of insurance and investment tools, ULIPs too demand your attention and caution when you go to buy them. In order to find the best ULIP, the investor must adhere to the following points-

Analyse the risk attached to the particular investment fund

As mentioned above, different ULIP funds carry different amounts of risks, and hence it is crucial to go as per ones risk taking capacity. Go as per your intuition and don't invest in a high risk fund unless you are sure of getting the returns you aim for.

Check the life cover

Never forget that ULIP is an insurance product in the first place. So, keep a very close eye on the death benefit when buying your ULIP. The correct unit linked insurance plan will offer an appropriate death cover and prove to be highly beneficial for you.

Know your investment goals

Be very sure of the reasons why you want to buy the ULIP. If you aim to buy a house with it, or wish to secure an education corpus for your kids, every investment has a goal. If you know what your financial milestone is, you will be able to invest in the correct ULIP.

Long term investments

Since ULIPs are long-term plans, you can plan your retirement with a unit linked insurance plan. If a sufficient retirement corpus is your aim, choose the plan very carefully.


You must compare the different ULIPs to ensure you find the absolute best plan. It is very easy to compare ULIPs online and the process barely takes a few minutes. There are many good online insurance aggregator portals like where this can be done free of cost. So, compare the ULIPs properly and choose your ideal cover in a methodical and precise manner.

Right amount of Life Cover

The main aim of a ULIP plan is to help you meet your financial goals like saving for child’s higher education, a dream wedding or saving for your retirement. In addition to this, ULIPs also come with a very important feature of providing a life insurance cover to secure the dreams of your dependents. In case of an eventuality, the policy gives out a lump-sum amount to the nominee mentioned in the policy, ensuring the dreams are not squashed in the absence of the policyholder. ULIP allows a minimum life cover of 10 times of the annual premium of the plan. The Life cover multiple is a flexible amount and the investor can select the life cover multiple as per his/her requirements, subject to a limit of a particular plan.

For example, for an annual premium of INR 1 lakh, the policyholder can get a minimum Life Cover of INR 10 lakhs which is 10 times the annual premium. The plan might even offer life cover multiple options like 15 or 20 times the annual premium chosen.

Stay invested in ULIPs for a long term

The main aim of most investors investing in ULIP is to fulfil their long term goals such as buying a new home, starting a new business, going on a dream vacation, etc. The lock-in period of ULIP is 5 years instead of 7 to 15 years in other investment options. The lock-in period helps in instilling a discipline and forced savings habit which bars one from dipping into the invested amount as and when the need arises.

Tax benefits

ULIP not only gives the investor the advantage of life cover, capital appreciation, good returns, but it also has one more crucial advantage of tax benefits. The tax benefit of ULIP comes under the provisions of Income tax Act, 1961. Let’s understand the tax advantage at different stages of ULIP investment.

  • Stage 1: Entry Stage The investor/policyholder can get tax benefits by way of taxable income deduction for the premiums paid under Section 80C of the Income Tax Act, 1961.
  • Stage 2: Earnings or capital appreciation stage The growth or the capital appreciation on the value of investment is not taxable.
  • Stage 3: Unique Switching Advantage ULIP provides unique switching of funds to tackle the volatile nature of market and gain maximum returns. The switch between debt and equity funds is completely tax free in ULIP.
  • Stage 4: Benefit payout stage of the plan

Death benefit paid under the ULIP plan is completely tax free under the provisions of Section 10(10D) of the Income Tax Act, 1961. The maturity amount is also tax free as per the conditions stated under the Income Tax Act, 1961.

Know the charges in ULIP

In ULIP, the premiums you pay are invested into the chosen fund i.e. debt and equity investments after deducting all the applicable charges. The charges for ULIP are divided into different categories.

Premium Allocation charges

The policyholder will be charged the premium, which is allocated to the fund chosen by the investor. Policy administrative charges

These charges are deducted regularly for the recovery of expenses borne by the insurer towards the policy.

Surrender charges

This refers to the deduction for the full or partial encashment of premature units subject to the policy documents. Surrender charges are levied as a percentage of fund value or percentage of premium payments.

Mortality charges

Mortality charges are deducted by the insurer for providing a life cover to insured. The charges will vary with the age and sum assured.

Fund management charges

The insured bears the charges for the management of the funds which are invested in equity, debt or other defined funds.

Fund switching charges

ULIP plans help you to invest your hard-earned money in different funds that have different equity and debt exposures. You can switch between different funds whenever you want to. The insurer bears the charges for switching between funds.

Discontinuance charges

On premature discontinuation, the insurer charges you a small fee. The charges will be the same across all policies as per IRDA.

FAQs on How to Choose Best ULIP Plans

Is ULIP a good investment option?

ULIP offers dual advantage of life insurance and great investment option of participating in capital markets investments like equity and debt funds. ULIP also offer tax benefits to the investor. The Investor can also switch between equity and debt funds. With so many great features, ULIP is a very good investment option.

Is ULIP better than FD?

ULIP definitely has the potential to earn better returns due to its equity advantage. ULIP and FD both come with lock-in periods, but with ULIP, an investor can gain higher by participating in market-related investments. Unlike FD, ULIP also offers crucial life coverage to the investor.

Is ULIP better than MF?

ULIP offers dual advantage of life insurance and investment, while Mutual fund just offers an investment option. If an investor wants both factors in single investment, then ULIP makes for a better choice than MF.

Is ULIP returns tax free?

If the life cover in ULIP is at least 10 times the annual premium, then proceeds from the maturity or early surrender is tax free as per Section 10(10D) of the Income Tax Act, 1961. The death benefit under the plan is also free from any tax liability.

Which is better ULIP or mutual fund SIP?

If the investor is looking for long-term investment in order to get better returns and also wants tax benefits and life cover in one single plan, then ULIP serves as a better option.

Which ULIP plan is best?

Today, there are a lot of ULIP plans floating in the life insurance market in India by top-notch life insurers. To select the best ULIP plan, an investor should remember these handy tips-

  • Choose your investment fund depending on your risk appetite
  • Keep your investment for the long term in ULIP for capital appreciation and good returns
  • Cost of ULIP increases with age due to life cover component. So invest early
  • Compare different plans on offer by making using of comparison websites and calculate the premium amount by using the online premium calculator.