A Guide to Buying the Best ULIP According to Your Needs

If you are investing in any financial instrument with the objective of gaining high returns, then you should do so with complete knowledge of the subject matter. With so much jargon-infested information being presented on a large scale these days, it can get overwhelming for a new investor to get a clear understanding of the product they want to invest in. This can be especially true for slightly complex or unique financial products, such as a ULIP. This article aims to provide a guide on ULIPs and how to buy one as per your needs in a simplified manner.

What is a ULIP policy and how does it work? 

The premiums of a ULIP are used to build a life cover for the benefit of your loved ones in your absence and to invest in market-linked instruments. If an unfortunate event leads to your demise, your loved ones receive the sum assured and the fund value of the ULIP. These pay-outs help your family to deal with the financial uncertainties that may have come up in your absence. The market-linked instruments your money goes into can be either equity funds, debt funds, or a combination of both.

Tips to remember when buying a ULIP

Have a long-term financial plan 

A ULIP has a lock-in period of five years during which the returns keep on getting accumulated. You are allowed to withdraw funds from your ULIP policy only after this lock-in period has been completed. This is ideal for investors who have long-term goals such as children’s education or marriage, retirement travel plans, and so on. Therefore, before you begin your ULIP journey, list down the durations you want to allot to your goals and the money they will require, get a hold of your budget for investment, and then go ahead.

Take advantage of the fund switching option

Let’s assume you have invested a large portion of your ULIP investment into equity/market-linked funds. The market has been performing well consistently and has very recently reached a new high. This has allowed your investment to gain good returns. However, looking at past trends, you may be predicting that the market will soon be experiencing a record low. This can even lead to losses for you.

In such a situation, you can simply reach out to your insurer and get the equity funds transferred to debt funds, helping you avert losses by opting for more secure instruments. This is called fund switching and is considered to be one of the best ULIP benefits. A policyholder is allowed to switch funds several times a year, depending on the insurer.

Increase your coverage with riders

Many people focus largely on the investment aspect and miss out on the insurance elements of a ULIP. Aside from the life cover, you can increase your coverage by opting for riders. Though you may incur a slightly higher premium, the rise in the level of financial protection will be worth it.

The critical illness benefit rider provides a lump-sum payment to the policyholder on the diagnosis of the covered critical illnesses. The accidental permanent partial/total disability rider provides financial aid during eponymous events.

Make the most of the tax benefits 

The best ULIP benefits are to be found in the tax arena, such as:

  • ULIP premiums – eligible for tax deductions up to Rs 1.5 lakhs under Section 80C of the Act
  • Death benefit pay-out, maturity benefits, and the surrender value pay-out – exempted from tax
  • Partial withdrawals from a ULIP (post the completion of the lock-in period) – also tax-exempted

These benefits are subject to modifications in tax laws. You can consult a tax expert to plan out your tax-savings in the most efficient way.

Now that you can answer the question, “What is a ULIP policy?” and know how to benefit from ULIPs, let’s take a look at how to choose the right insurer.


What to look for in an ULIP provider? 

  • The claim settlement ratio

This ratio signifies how likely is your claim to be approved when the time comes to raise one.

  • The customer service

A ULIP policy requires genuine collaboration with the insurer. Be sure to choose a reliable, responsive, and reputed insurer.

  • Positive reviews

Reading the reviews and testimonials helps you get a better understanding of how your ULIP journey with the insurer will be like.

We hope this information helps you curate the best ULIP plan for you.

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