What is a ULIP?
A Unit Linked Insurance Plan is a life insurance policy in which most of your premium is invested in market-linked funds. After charges, the money buys units in the funds you choose, much like a mutual fund. Part of the charges pays for life cover, which goes to your nominee if you die during the policy term.
ULIPs are regulated by IRDAI, not SEBI, and every ULIP has a five-year lock-in from the date of purchase. No partial withdrawal or surrender payout is made before that.
Where your premium goes
Say you pay ₹1,00,000 a year (illustrative). Broadly, this is what happens to it:
- A premium allocation charge comes off the top, if the plan has one
- The rest buys units at that day's NAV in your chosen funds
- Each month, some units are cancelled to pay policy administration and mortality charges
- The fund management charge is adjusted within the NAV
Charges differ a great deal between plans, so comparing two ULIPs on total cost matters more than comparing past returns. IRDAI requires insurers to give you a benefit illustration showing what is left after charges at assumed rates of return — read it before you sign.
Tax in brief
| Situation | Treatment (check current rules) |
|---|---|
| Premium paid | Deduction under Section 80C of the earlier Act, old regime only |
| Death benefit | Tax-free |
| Maturity, total annual ULIP premium up to ₹2.5 lakh | Exempt, subject to conditions |
| Maturity, total annual ULIP premium above ₹2.5 lakh | Taxed as capital gains |
The ₹2.5 lakh limit applies to ULIPs issued on or after 1 February 2021, across all such ULIPs you hold.
Who should consider a ULIP
A ULIP can work for someone with a long horizon who already has adequate term cover, values the discipline of a regular, locked-in premium, and is comfortable with market ups and downs. It is less suited to anyone who may need the money within five years, or whose main need is protection.
Our team compares ULIPs from multiple insurers on charges, fund choices and benefit illustrations, helps with the paperwork, reviews your fund mix with you each year and supports your family with claims.
