Decoding ULIPs: Numbers That Tell the Story of Unit Linked Insurance Plans in India

The youth have time on their side. However, they lack the experience to make important decisions, which can cause confusion, misunderstanding, and potentially wrong decisions. They know what they need is insurance and an investment tool that generates wealth. This is where ULIPs come in. ULIP stands for Unit Linked Insurance Plans. 

ULIPs have a dual purpose. They help you solve for the life coverage by providing you the element of insurance, while offering an investment portion which helps you invest your money. The investment can be in equity, debt or a mix of both, based on your needs and the level of risk that you can undertake. The premium that you pay for your ULIPs is split towards your life security cover, and the remaining goes toward your investment which generates your wealth. 

ULIPs were introduced in India in 1971. ULIPs weren’t regulated early-on because such initiatives are often fine-tuned based on the learnings from its implementation. Similar to what we’ve seen in the recent GST laws. However, ULIPs weren’t very popular then and gained popularity in 1989. Since then, a lot of changes have been brought to the way ULIPs are managed and now comes under the ambit of Insurance Regulatory and Development Authority of India. Even today there is a stigma about transparency, lower returns of the ULIP due to mis-selling. However, that is not the case anymore. ULIPs in 1989 were managed by LIC and some private players. This led to a lot of mis-selling and misrepresentation of the product. 

The IRDAI has made many changes that are welcomed by many. One of the biggest changes is that some ULIPs had a lock-in period of 5 years, which has been reduced to 3 years. The investment portion is now managed similarly to how a fundhouse would manage a mutual fund scheme. There is much more clarity on where the money is invested, how it is invested, and the type of charges to which a ULIP investment portion applies. 

This is why ULIPs are now a game-changing investment option for many who want to keep investments and insurance with just a single policy rather than paying for two separate policies. 

Let’s deep dive into ULIPs:

ULIPs have an annual premium of about ₹15,000 and can go up to ₹600,000. This means that ULIP can be purchased and invested in my people across levels of income. 

ULIPs do have a risk profile. This risk profile varies on the type of investment portion chosen by you. If you have chosen an investment option that provides higher returns, your risk profile will be higher. 

Your returns will be linked to market sentiments. The level of your returns is further dependent on the type of investments chosen by you. Small-cap and mid-cap choices run higher risk, but returns may be higher. Sticking to investing for a long period will help you develop a better NAV, in turn delivering the returns you deserve.

The policy charges are detailed clearly. They mention the management charges, investment charges, insurance premiums, and much more. If you are looking for a multipurpose investment choice, then ULIPs is your best bet. 

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