ULIP Plans - Unit Linked Insurance Plans

A Unit-Linked Insurance Plan (ULIP) is a financial product that combines the benefits of life insurance cover and investment in one plan. When a policyholder buys a ULIP, portion of the premium paid goes towards securing the life insurance plan and the remainder is invested.

ULIPs offer a high degree of flexibility allowing policyholders to invest in various kinds of funds based on risk appetite. ULIP investment are subject to a lock-in period of five years and tax benefits under section 80C of the Income Tax Act under the old tax regime, as per current tax rules.

Because ULIP returns are not guaranteed and contingent upon market performance, ULIPs are best suited as a long-term investment option. Be it for creating wealth or a retirement plan, ULIPs fit into the needs of various types of investors. Additionally, as per current tax rules, ULIP returns are tax-free in the hands of the investor as per details specified u/s 10(10D) of the Income Tax Act, 1961. However, the charges, such as premium allocation and fund management fees, need to be considered before purchasing a ULIP plan.

It should be note that the risks in the investment portfolio of a ULIP are borne by the policyholder.

In other words, investing in one of the best ULIPs provides a flexible approach to investment planning. ULIPs help you safely balance your fund with equity and debt components, with options to switch as the market changes. At the same time, a Unit linked insurance plan protects your investments and life goals while offering financial coverage.

Unit Linked Insurance Plans invest in units of various funds based on the applicable Net Asset Value (NAV) of the fund units. The NAV of ULIP fund units changes every day the markets are open. When the value of underlying assets of the ULIP fund increases, the NAV increases, while the NAV declines when the value of the fund assets goes down. The returns of a ULIP can thus be calculated by tracking the changes in the fund NAV.

Two methods of manually calculating the ULIP returns are absolute returns and CAGR returns. Alternatively, you can use a ULIP calculator to get accurate instantaneous results.

• Absolute Returns:

  
  Absolute returns calculate the growth of an ULIP fund based on the fund NAV at the time of investment and the fund value at a later date. This calculation does not take into account the time period over which the ULIP investment has grown. So absolute returns are usually calculated for investment periods of less than 1 year.
  
  The formula to calculate absolute returns of a ULIP looks like this:
  
  Absolute Returns (%) = [(Current ULIP Fund NAV - Initial ULIP Fund NAV) / (Initial ULIP Fund NAV)] x 100




• CAGR Returns:

  
  CAGR or Cumulative Annual Growth Rate returns method also tracks the change in NAV of a ULIP fund over time. However, this method considers the time period over which the NAV change has occurred. This is why CAGR returns of ULIPs are preferred for investment periods that are longer than 1 year.
  
  The formula to calculate CAGR returns of a ULIP using NAV looks like this:
  
  CAGR Returns (%) = [(Current ULIP Fund NAV / Initial ULIP Fund NAV)^(1/n)] x 100
  
  Where, n = Investment period in years




• ULIP Calculator:

  
  A ULIP calculator is a free online tool that can help you determine the maturity amount of a unit linked insurance plan. The results of this calculator is based on your planned current investments and expected returns under the ULIP policy.
  
  Online ULIP calculators provide instantaneous and accurate estimate of the future value of your chosen ULIP plan investments. You can calculate maturity value for different ULIP funds and this can help you compare different ULIP plans. This is how you can use a ULIP calculator to make rational investment decisions based on a comparative returns analysis of different ULIP plan.

Let us take a closer look at the different ULIP charges offered by Axis Max Life Insurance:

A ULIP directs half of the premium to provide life insurance coverage, and the rest is invested in the market-linked funds. Over time, the invested amount towards market-linked returns can grow based on the market performance, helping the policyholder use the money for other finances.

Investing in ULIP for the long term can help the policyholder maximise the benefits. Further, this plan allows the policyholder to switch between funds as per the market conditions or their risk appetite. This ensures that the invested amount matches their financial objectives.

Hence, a ULIP helps in both protection and investment, making it an ideal tool for wealth creation with life coverage.

A ULIP plan is perfect for,

• An investor with a medium to long-term target:

  These plans are a good fit if you are saving money for your retirement or child’s education, etc.

• Investors with diverse risk appetites:

  Depending on your risk appetite, you may choose funds such as equities, debt, or other asset classes.

• Investors at different life stages

  Whether you are nurturing a family or planning to retire, ULIPs can help you achieve goals at any stage in your lifetime.

• Young professionals:

  One benefit of starting early is that the premiums are affordable, and your investment will have more time to grow. You can also build the habit of regular savings.

• Ideal for investors looking for insurance and investment:

  ULIPs are suitable for individuals with long-term financial goals, particularly those who can remain invested for a period of at least 5 years. They are also ideal for people seeking the dual benefits of investment and insurance in a single plan.
  
  Working professionals who plan to create a retirement fund over a long-term horizon can invest in ULIPs. The compounding returns, along with the fund switching option, enable investors to reap the benefits of long-term capital appreciation while adjusting their investment based on market conditions.

ULIPs allow you to invest in a wide range of investment options such as equity, hybrid as well as debt funds. While all of these different types of ULIP funds feature various degrees of risk, ULIP plans allow you to switch between different funds. This makes them an ideal long term investment plan for wealth creation.

Depending on your risk appetite and market conditions, the choice of ULIP fund can help reduce potential risk and optimise returns over the long term. So, while your ULIP investments may be prone to volatility, it does offer the potential to grow your wealth significantly over the long term.

Apart from the long-term growth potential of ULIPs, another reason why ULIPs may be considered safe for the long-term are the various regulations in place. These regulations are developed and enforced by the IRDAI for the benefit of policyholders. Moreover ULIP policies also offer protection through the benefit of life cover, which provides a financial safety net for the policyholder’s loved ones.

Some of the riders available with Axis Max Life plans are,

1. Axis Max Life Critical Illness and Disability Secure Rider:

   It provides the total coverage amount if a person is diagnosed with one of the covered critical illnesses (up to 64 different illnesses) or suffers a total or partial disability.

2. Axis Max Life Smart Ultra Protect Rider:

   It is a ULIP rider that allows the policyholder to choose from the available options. The variants may include:

• Term Booster with Accelerated Terminal Illness:

  Provides benefit upon demise or diagnosis of an end-stage disease.

• Accidental Death Benefit:

  Increases the insurance amount with an additional lump sum payment if the insured dies due to an accident.

• Accidental Total and Permanent Disability:

  Here, if a total and permanent disability occurs due to an accident, the insured gets a pre-decided sum of money.

• Payor Benefit:

  When the insured person dies or suffers from a fatal disease, making premium payment impossible, all future premiums are waived, and the policy remains in force.

Unit Linked Plans or ULIP serves the primary purpose of wealth appreciation on your ULIP investment via different market-linked instruments and providing life cover. ULIP plan can be bought online is quick and simple steps. Mentioned below is the step-to-step guide to buy ULIP online:

Knowing how ULIPs stack up against other popular investing options can help you make better financial decisions. The table below shows the key similarities and differences between ULIPs and other common investment options:

Here are some useful tips to help you get the most out of your ULIP:

• Start Early:

  If you start investing in a ULIP early in life, you will have a big advantage. The longer you invest, the more compounding can help your money grow. Over time, small, consistent payments can turn into large amounts of wealth.

• Stick to Your Investments:

  Making regular premium payments helps smooth out market fluctuations. This disciplined investment habit promotes rupee-cost averaging. Under the rupee-cost averaging concept, you buy more units when prices are low and fewer when they are high, resulting in better average returns over the long term.

• Spread Out Your Fund Allocation:

  In ULIPs, you can pick between equity, debt, or balanced funds. You may balance risk and reward by spreading your money among several types of funds. This will keep your portfolio in line with your financial goals and risk tolerance.

• Monitor and Rebalance Periodically:

  Regularly review your portfolio's performance to ensure it stays on track and meets your goals. Then, adjust your approach to take advantage of market fluctuations and minimize the risk of declines.

• Use Tax Benefits Wisely:

  Ensure to take advantage of the tax benefits available for ULIPs. You can deduct premiums paid under Section 80C*, and the maturity profits are tax-free under Section 10(10D)*, which increases your overall returns after taxes.

Like other life insurance plans, for buying ULIPs too you must meet certain prerequisites. See the checklist below to understand better:

The premium you pay for ULIPs is allowed a deduction of up to ₹1.5 lakhs per year under Section 80C (old regime).

For ULIPS purchased on or after February 1, 2021, if the annual premium exceeds ₹2.5 lakh, the proceeds will be taxed as capital gains. However, the death benefit remains fully exempt.

Let's say you invest ₹2 lakhs each year into a ULIP bought after February 2021. You will be able to claim a tax deduction under Section 80C, and if your annual premium remains below ₹2.5 lakh, the maturity amount will remain tax-free under Section 10(10D).

Below table compares key features and tax benefits offered by some popular tax saving investments in India:

Knowing about the main mistakes people make when investing in ULIPs can have a big impact on the overall returns and policy advantages. Let’s check them out below:

1. Pursuing Short-Term Gains:

   ULIPs are designed for long-term wealth creation, rather than immediate gains. Quick profits should not be expected from this, as market-linked investment may fluctuate in the short run. Patience and consistency are essential for achieving decent growth.

2. Ignoring Fund Performance:

   Most investors don't check on their fund's progress very often. You can keep your investment in line with your financial goals by regularly checking the ULIP portfolio and adjusting the funds if necessary.

3. Ignoring Policy Fees Associated:

   There are several fees associated with ULIPs, such as mortality charges, administration charges, and fund management charges. Knowing these costs ahead of time will help you set realistic goals and determine how they affect your returns.

4. Withdrawing Too Soon:

   Early withdrawals from ULIPs break the force of compounding and limit your potential gains because they have a five-year lock-in period. To get the most long-term growth gains, you should stay invested for the whole term.

5. Not Paying Attention to Goal Alignment:

   You should always have a clear goal in mind when you invest in a ULIP, including paying for your child's education, saving for retirement, or long-term wealth generation. When you align your ULIP to defined goals, it helps you stick to your investment plan and make better financial decisions.

ULIP is a popular investment option in India. However, with such popularity comes a lot of misconceptions. Here are some of the myths surrounding investment in ULIP:

As ULIP offers the dual benefits of life insurance and investment, you can claim a tax exemption (up to INR 1,50,000) applicable for life insurance products under Section 80C of the Income Tax Act.

If the premium paid towards unit linked insurance plan or ULIPs exceeds Rs. 2.5 lakh, then the returns will be taxable. The rate of tax will depend on the ULIP composition.

Axis Max Life Insurance offers the following unit linked insurance plan or ULIP variants:

Investing in the best unit linked insurance plan or ULIP allows you to accumulate wealth in a personalised manner, wherein you can maximise your savings as per your financial disposition and risk appetite to support different life goals. Different types of ULIP plans that may cater for your financial needs include:

A ULIP calculator is primarily a tool developed to help you determine the maturity amount under a unit linked insurance plan, based on your expected future investment value and returns under the ULIP policy. Online ULIP calculators have different features to estimate the future value of your chosen ULIP plan investments and expected returns, which in turn, helps you compare various ULIP plans. In other words, you can use a ULIP calculator to make rational investment decisions based on a comparative cost-benefit analysis of a ULIP plan. Such ULIP calculators help determine the maturity amount by assuming several factors. Please consult your financial advisor before investing.

It is well known that the power of compounding helps your investments grow with time. But have you ever wondered how much your investments can actually grow with time? The below table illustrates the potential growth of your investment at the end of 20 years for different Unit Linked Insurance Plans assuming a monthly investment of Rs. 10,000 for 10 years:

Note: Returns are 5-year Compounded Annualised Growth Rate (CAGR). Past performance is not indicative of future performance. The Star rating is the Overall Rating. Rating and returns are as on 30^th September 2026.

The above-mentioned fund returns are after deduction of Fund Management Charges (FMC).

In unit-linked insurance plans, the policyholder bears risks associated with the investment portfolio. Past performance is not necessarily indicative of future performance. The linked insurance products do not offer any liquidity during the first five years of the contract. The policyholder cannot surrender/ withdraw linked insurance products’ investment amount completely or partially for five years. Returns are 5-year Compounded Annualised Growth Rate (CAGR). Rating and returns are as on 30^th September 2026.

© 2020 Morningstar. All Rights Reserved. The information, data, analyses and opinions (“Information”) contained herein: (1) include the proprietary information of Morningstar and its content providers; (2) may not be copied or redistributed except as specifically authorised; (3) do not constitute investment advice; (4) are provided solely for informational purposes; (5) are not warranted to be complete, accurate or timely; and (6) may be drawn from fund data published on various dates. Morningstar is not responsible for any trading decisions, damages or other losses related to the information or its use. Please verify all of the Information before using it and don’t make any investment decision except upon the advice of a professional financial adviser. Past performance is no guarantee of future results. The value and income derived from investments may go down or up.

The ‘Morningstar Overall Rating’ is a quantitative assessment of a fund’s past performance — both return and risk — as measured from one to five stars, with one (1) being the lowest and five (5) being the best as on 30^th September 2026.

Here are the various types of ULIP funds you can invest in:

Given below are several ways through which you can opt to manage your ULIP funds:

Before you start planning to invest in ULIPs, here are some important things to think about:

• Set Your Financial Goals:

  You should know where you're putting money into from the very beginning. The most common avenues are your child's education, budgeting for retirement, or buying your dream home.
  Your goals will help you pick the right kind of ULIP and the best approach to use your money.

• Assess Your Risk Appetite:

  Know how much risk you're willing to take. If you don't mind market fluctuations, equity-heavy funds might be suitable. Debt or balanced options funds are good choices for conservative investors.

• Review the Charges:

  While investing in ULIPs, you are supposed to pay multiple charges. These charges include Premium Allocation charges, Fund Management, Policy Administration charges, Mortality Charges, and Surrender Charges.
  While comparing across insurers always remember, the lower the charges, the more of your money get invested and grows.

• Analyse Fund Performance:

  Past results don't guarantee future success, but they do reflect how well a fund has been operated. Check the performance of the fund throughout multiple time periods and market cycles to make sure it is consistent.

• Look for Flexibility:

  Life changes, so your investment plan should be flexible. Pick ULIPs that let you transfer funds, make partial withdrawals, add money, and change your premium payments to make sure your strategy stays in line with your changing demands.

• Learn About the Lock-in Period:

  There is a five-year lock-in period for all ULIPs. Before you agree to one, make sure you're okay with this time frame and that fits your budget.

• Make Sure You Have Enough Insurance Cover:

  The insurance part of ULIPs is just as crucial as the market-linked part. Make sure the life insurance cover is enough to keep your family's finances stable in the future.

• Read the Small Print:

  Always carefully examine the terms and limitations that apply to withdrawals, surrender value, and exclusions. It will help you understand the details to avoid any last-minute surprises.

• Look at Different Plans:

  Don't just go with the first ULIP option you encounter. Instead, look at the features, fund alternatives, and associated costs of several insurers to choose the one that best meets your needs and financial goals.

• Take the Help of a Professional:

  If you can't figure out what to do, talk to a licensed financial advisor. They can assist you in picking the best ULIP depending on your financial goals and risk appetite.

When you invest in a ULIP, a part of your premium goes to life insurance, and the rest is invested in equity, debt, or balanced funds. Units are allotted to you for the same. The market value of each unit is known as NAV.

In ULIPs, NAV helps monitor fund performance, understand growth or decline in investments, make fund-switching decisions, and assess risk and cost efficiency.

The NAV of a ULIP is calculated daily using the formula:

NAV = (Market Value of Investments + Current Assets – Liabilities) ÷ Total Number of Units

For instance, assume a ULIP fund has the following details:

• Market Value of Investments: ₹1,00,000
• Current Assets: ₹10,000
• Liabilities: ₹5,000
• Total Units in the Fund: 10,000

Step 1: Calculate Net Assets

• ₹1,00,000 + ₹10,000 – ₹5,000 = ₹1,05,000

Step 2: Calculate NAV

• ₹1,05,000 ÷ 10,000 units = ₹10.50 per unit
• This means each unit of the ULIP is worth ₹10.50.
• If you hold 2,000 units, the total value of your investment becomes:
• 2,000 × ₹10.50 = ₹21,000

Before purchasing an ULIP plan, it is important to have a sound knowledge about the various terms involved in ULIP plans. Here is a list of important terms in ULIPs:

Raising a claim against the life coverage available under your ULIP plan is simple. Most insurers follow a 3-4 steps approach to honor claims.
Let’s get to know the standard claims procedure that may differ from insurer to insurer.

Unit Linked Insurance Plans and Mutual Funds are often compared by potential investors to help decide which option is better suited to their unique financial needs. Another common consideration in this regard is whether to make a lumpsum investment or a systematic one such as a SIP (Systematic Investment Plan) in a mutual fund. Let’s take a closer look at the key differences between ULIP, Mutual Funds and SIP:

Real questions and top answers from Reddit communities - unfiltered opinions from actual policyholders and financial planners.