3. What is the best way to choose ULIP?

To choose the best ULIP for yourself, you should compare plans and select the one that charges you the minimal amount in Premium Allocation, Policy Administration, Mortality, and Fund Management Charges.

How to Choose the Best ULIP Plans to Invest in 2025

Q: 2. Is it good to invest in ULIP plans?

ULIP plans are a combination of investment and life cover2. Investments help you achieve your long-term financial goals, whereas life cover2 makes sure your family doesn’t have to bear the financial burden in case of your untimely demise. ULIP premiums can also help you claim deduction under Section 80C* of the Income Tax Act, 1961, and ULIP payouts are exempted subject to conditions under Section 10(10D)* of the Income Tax Act, 1961. Hence, investment in ULIP can be considered a good idea.

Evaluating what maybe the plan with high returns for you, requires a thorough review of several factors. Consider long-term financial goals, risk tolerance, investment horizon, insurance needs and more can help you select a ULIP that best aligns with your needs and helps you achieve your financial goals.

What are ULIPs?

A Unit-Linked Insurance Plan (ULIP) is an insurance cum investment product that offers a life cover² to your loved ones in your absence and lets you invest your money in market-linked funds of your choice.

Steps to Select the Best ULIP Plan in India

Below are some steps that can help you select the best ULIP for your needs:

Determine your Financial Objectives

It is important to clearly define your financial goals, such as wealth creation, retirement planning, home ownership and more. This can help you align the ULIP to your goals effectively.

Evaluate your Risk Appetite

ULIPs offer a range of funds^#, including equity, debt and balanced funds. Your choice of funds will depend on your risk appetite. For instance, equity funds are considered high-risk, whereas debt funds are considered low-risk. Balanced funds strike a balance between the two.

You must assess your risk tolerance for investments and choose a ULIP that matches your comfort level.

Compare Fees and Charges

ULIPs have premium allocation, fund management and policy administration charges. These fees can vary from plan to plan. Therefore, it is necessary to thoroughly understand and compare the various fees and charges associated with these plans and select the most cost-effective one.

Check Fund Options

ULIPs offer a diverse range of investment funds to cater to different investment goals and risk appetites. Equity funds primarily invest in stocks. Debt funds predominantly invest in fixed-income securities such as government and corporate bonds, money market instruments and more. Lastly, hybrid funds invest in a mix of equities and debt instruments to provide a balanced approach to risk and return.

You need to evaluate the range of investment funds to build a well-diversified ULIP portfolio tailored to your needs.

Compare Lock-in Period

ULIPs have a lock-in period of five years. During this duration, your investment remains locked and you cannot make partial withdrawals. You must carefully understand the terms and conditions of the plan with respect to the lock-in period and evaluate your liquidity needs to avoid hassles later.

Carefully Read Policy Documents

It is important to review the policy documents, including terms, conditions, features, exclusions, inclusions, benefits and more, to understand the plan comprehensively. The best ULIP investment plan offers transparency to ensure you understand how the plan works and can make well-informed decisions.

Compare Fund Performance

Along with the choice of funds, you must also analyse the performance of the funds within the ULIP. This allows you to understand their return potential and confirm if they align with your investment objectives.

Check Out the Tax Benefits

Investing in ULIPs offer tax* benefits. You can claim a deduction on your ULIP premiums of up to ₹ 1.5 lakh per annum subject to conditions prescribed under Section 80C of The Income Tax Act, 1961. Additionally, the maturity benefit is exempted subject to conditions prescribed under Section 10(10D)* of The Income Tax Act, 1961, which further maximises your tax efficiency.

Reasons Why you Might Consider Investing in ULIPs

Below are some reasons to consider investing in a ULIP:

Combination of Insurance and Investment

A ULIP is a one-of-a-kind product that combines the benefits of two different products into one. With a ULIP, you can take care of your life insurance needs and investment goals. Therefore ULIP turns out to be convenient as you only pay one premium for both your needs.

Long-Term Wealth Creation

ULIPs are tailored for long-term wealth creation. Their mandatory lock-in period of five years encourages you to adopt a long-term perspective. This, in turn, helps you prioritise your long-term goals. The disciplined approach can lead to more effective wealth accumulation over time.

Professional Fund Management

ULIPs are managed by skilled fund managers who handle investment decisions on your behalf. Entrusting your investments to these professionals can simplify the investment process as it helps you leverage their expertise. This can potentially lead to enhanced returns and risk management.

Flexibility

ULIPs offer a high degree of flexibility in terms of premium payment frequency and fund allocation options. To accommodate your financial capabilities, you can choose from various premium payment options, including monthly, yearly, half-yearly or lump sum payments. Additionally, the ability to switch between funds enables you to adjust your investment strategy according to changing market conditions, risk tolerance and financial objectives. You can also use the top-up facility to increase your investments.

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FAQs

1. What is a ULIP?

A ULIP or Unit Linked Insurance Plan is a life insurance policy that helps you grow wealth by investing your money in the financial markets, while also securing your loved ones with a life insurance cover.

2. Is it good to invest in ULIP plans?

ULIP plans are a combination of investment and life cover². Investment in the fund of your choice will help achieve your long-term financial goals. The life cover² makes sure your family doesn’t have to bear the financial burden in case of an unfortunate event. ULIP premiums are eligible for deduction under Section 80C* of the Income Tax Act, 1961, and ULIP payouts are exempted subject to conditions under Section 10(10D)* of the Income Tax Act, 1961. Hence, investment in ULIP can be considered a good idea.

3. What is the best way to choose a ULIP?

To choose the best ULIP for yourself, you should compare plans and evaluate them based on your financial objectives, risk tolerance, available funds and their returns, life cover, investment horizon and the charges associated with the ULIPs.

4. Which is better ULIP or term insurance?

ULIP and term insurance are different categories of life insurance. If you are looking to invest your money to achieve a financial goal with the umbrella of life cover², then buy a Unit Linked Insurance Plan. If you wish to get a pure protection plan, then buy a Term Insurance Plan.

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Disclaimer

²Life Cover is the benefit payable on death of the life assured during the policy term.

^*Tax benefits under the policy are subject to conditions under Sections 80C, 10(10D),115BAC and other provisions of the Income Tax Act, 1961. Goods and Service Tax and Cesses, if any, will be charged extra as per prevailing rates. Tax laws are subject to amendments made thereto from time to time. Please consult your tax advisor for more details.

^#Past performance is not indicative of future performance.