How a ULIP Works - Features and Benefits

Looking for a smart way to protect your family and grow your wealth? A Unit Linked Insurance Plan (ULIP) might just be the perfect solution. In India, ULIPs are popular because they combine life insurance with investment opportunities, helping you achieve life goals while ensuring your loved ones stay financially protected.

In this blog, we’ll explain what a ULIP is and how it works, its key features and benefits, and how to choose the right ULIP for your needs.

What is a ULIP Plan?

A Unit Linked Insurance Plan (ULIP) is a two-in-one product that offers:

Life insurance protection — to safeguard your family’s future

Market-linked investment — to help your wealth grow over time

When you pay a ULIP premium, part of it goes towards providing life cover, and the rest is invested in funds such as equity, debt, or balanced funds. You can choose where to invest based on your goals and risk appetite.

Over time, as markets grow, your investments gain value—helping you build a corpus for goals like buying a home, funding your child’s education, or planning your retirement.

ULIPs are also flexible. You can switch between funds, adjust premium payments, and make partial withdrawals after a lock-in period. Plus, they offer tax benefits, making them an attractive option for smart financial planning.

How Does a ULIP Plan Work?

Here is a simple breakdown of how ULIPs work:

1. Premium Split — Your premium is divided into two parts: one for life insurance cover, and the other for investment.

2. Choice of Funds — You can choose from:

• Equity Funds (for higher returns and higher risk)
• Debt Funds (for stable and lower risk returns)
• Balanced Funds (for a mix of growth and stability)

3. Unit Allocation — The amount invested buys units in the selected fund(s). The value of these units depends on the Net Asset Value (NAV), which fluctuates with market performance.

4. Flexibility and Switching — You can switch between funds depending on market trends or your evolving needs. This gives you control over your investments.

5. Liquidity — After the five-year lock-in period, you can make partial withdrawals, offering flexibility during key life moments.

How to Choose the Right ULIP Plan

Not all ULIPs are the same—choosing the right one matters. There are four main things you need to consider:

1. Fund Options: Look for ULIPs with a wide range of funds so you can match your risk appetite and financial goals.

2. Charges: Be aware of various charges (premium allocation, fund management, administration fees). Opt for a plan with competitive charges to maximize your returns.

3. Insurer Reputation: Choose a well-established insurer with a high claim settlement ratio and a track record of excellent fund performance.

4. Flexibility: Look for flexibility in fund switching, premium payments, and partial withdrawals. This gives you greater control over your financial journey.

Features of ULIP Plans

Here are the standout features and benefits of ULIPs that make them such a popular investment choice:

1. Dual Benefit: Enjoy life insurance coverage while growing your wealth.
2. Flexible Premium Payment Options: Pay premiums as per your convenience—single, limited, or regular.
3. Professional Fund Management: Your investments are managed by seasoned professionals aiming to optimise returns.
4. Transparency: Get regular updates on NAV, fund performance, and policy value.
5. Liquidity: Access funds through partial withdrawals after the lock-in period.
6. Policy Tenure and Maturity Benefits: Receive a lump sum at maturity to meet your long-term financial goals.
7. Tax Benefits: Enjoy tax deductions under Section 80C, and tax-free maturity benefits under Section 10(10D) of the Income Tax Act (subject to conditions).

Explore our ULIP offerings at Bandhan Life to find the perfect plan to fuel your dreams.

Who Should Consider Investing in ULIPs?

A ULIP is ideal for you if you:

• Want a single plan that offers life protection and wealth creation
• Are planning for long-term financial goals such as a child’s education, retirement, or a dream home
• Are comfortable with market-linked returns and can invest with a five-year or longer horizon
• Whether you are starting your investment journey or diversifying your portfolio, ULIPs offer a flexible and transparent way to achieve financial security and growth.

At Bandhan Life, our expert advisors help you select the right ULIP plan and guide you through fund choices—so your money works as hard as you do.

Discover more about our iInvest Advantage plans at Bandhan Life and how they can help you achieve your dreams.

Frequently Asked Questions

1. How does ULIP balance insurance and investment?

ULIP splits your premium between life insurance cover and market-linked investments. This ensures financial protection for your loved ones while growing your wealth to meet future goals.

2. What are the lock-in period and withdrawal options?

ULIPs come with a five-year lock-in period. After this, you can make partial withdrawals, allowing flexibility to access funds when required.

3. Can I switch funds within the ULIP?

Yes. ULIPs offer the flexibility to switch between equity, debt, and balanced funds, helping you align your investments with market trends and your personal risk appetite.

4. What tax benefits do ULIPs offer?

You can claim tax deductions under Section 80C for ULIP premiums, up to ₹1.5 lakh. Additionally, maturity proceeds are tax-free under Section 10(10D), provided certain conditions are met.