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How is ULIP structured?

How is ULIP structured?

Structured ULIP

As the economy kick-starts post the lockdown, it is an opportune time to look for investments and insurances to secure your future. It is a great idea to zero in on a policy that offers you the benefits of insurance while letting you grow your money. A ULIP plan not only gives you the advantage of both investment and life insurance but also lets you save tax.

However, before plunging into investing in a ULIP, make sure you understand how it works and what are its various components. This can help you utilise the features of this investment product to meet your financial goals in tune with your risk appetite as well as get adequate protection for life. Let us take a look at how a ULIP is structured to get a better idea.

Basic features

ULIPs are market-linked products that invest the premium paid by you across varied funds ranging from equity to debt as well as balanced in tune with your risk profile. Each policyholder is allocated units in accordance with the amount invested by them. You can switch between these funds in accordance with the risk you are willing to take.

Upon maturity, the total value of all units spread across various fund choices made by the investor during policy term is paid out. In the event of the death of the policyholder, the nominee receives the death benefit which may either be the fund value, sum assured, a combination of both or 105% of the premiums paid till the time of death.

A part of the premium of your ULIP plan is also invested towards providing a risk cover for your life in the form of life insurance. ULIPs also come with a 5 year lock-in period which makes them a long term investment. However, even before the premium is directed towards investment and insurance it is adjusted for charges as mentioned in the policy purchased by you. Here are a few:

  • Premium allocation: A fixed percentage of the premium paid towards your ULIP is deducted as fees for allocating the premium such as commission or renewal charges among others. Premium allocation charges decrease after the initial few years of policy purchase and are dependent on the frequency of premium payment as well as the type of premium chosen.
  • Fund management: A ULIP plan invests money across various funds as specified by the investor and thereby charges towards managing these funds apply which are deducted from the net asset value(NAV) of the fund. A maximum of 1.35% of the fund value is allowed to be charged towards managing a fund annually. Equity fund management attracts higher charges as compared to debt or balanced funds.
  • Mortality fee: A mortality fee is to be paid every month towards recovering the life insurance cover of your ULIP. Several factors such as the sum assured, age of the policyholder, medical history etc play a crucial role in determining the charges. Units of the funds invested under the ULIP are decreased in proportion with the charges as per your policy.
  • Switching charges: A ULIP plan allows you to switch between different funds as per your investment goals and market conditions. This offers you the flexibility to grow your wealth as per your comfort. While switches might be unlimited for some ULIPs, others charge you for a switch after you have exhausted the maximum limit. Depending on what your policy entails, you will have to pay a fee for making a switch beyond free switches allowed by your ULIP.
  • Premium redirection: Let us say you have chosen your premium to be invested in fund A, however as your financial goals near you might want to move to fund B, which is a debt-oriented fund as opposed to the equity fund that you are invested in. ULIPs allow investors this facility, also known as premium redirection, for a limited number of times. A fee is levied towards redirecting your premium as per your ULIP policy.
  • Policy administration: A flat fee is charged for the maintenance of your ULIP such as documentation, sending premium intimation or policy revival notice. These charges are also referred to as policy administration charges.
  • Discontinuing the ULIP: ULIPs come with a mandatory lock-in duration of 5 years. During this period, if you either surrender your policy or do not pay the premium, your investment is moved to a discontinuance fund. IRDA has prescribed discontinuance charges for ULIPs in such situations which are similar across all insurance providers.
  • Partial withdrawal: Once you have completed 5 years of your ULIP, you can withdraw some money from your corpus. Depending upon your insurance company, you might be allowed a limited number of such partial withdrawals. After which, an upfront fee is charged towards making a partial withdrawal. Some ULIPs might allow unlimited withdrawals as well.
  • Miscellaneous charges: Apart from all these charges, there might be some other fee to be paid as per specifications of your ULIP plan.

Despite all these deductions, a ULIP is a preferred investment choice that provides you the benefit of life insurance along with investment and tax-saving. Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life Insurance allows you the choice of 7 different funds in tune with your risk appetite to grow your wealth. Or choose from 4 portfolio strategies to streamline your investments.

Give a fillip to your savings with loyalty additions and wealth boosters as you save tax on premium paid as well as maturity proceeds. Whether it is creating a retirement corpus, building a fund for your children’s’ education or simply wealth creation for your life goals, a ULIP is a perfect investment choice. Start saving today and see your money grow over the years when you invest in a Unit Linked Investment Plan.

Speak to an insurance specialist now!


In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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