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How to read the benefit illustration of your ULIP

How to read the benefit illustration of your ULIP

ULIPs are one of the most promising investments, especially for beginners. They offer multiple benefits including tax deductions/ exemptions under various sections of the Income Tax Act. ULIPs are a good balance between calculated risks and secured returns. However, just like any other investment or policy, they need to be understood in detail before you make a decision to invest in them. Here’s a primer on how to understand the benefits of ULIP that you need to go through while selecting one.

Firstly, what is a ULIP? ULIPs are life insurance plans which come with an investment component as well. A ULIP investment divides its premium between life insurance cover and funds. These funds are selected as per your risk appetite. You can go for debt funds, equity funds, or balanced funds as per your choice.

What is a benefit illustration? More often than not, we buy life insurance plans and investments through agents to make the process convenient. However, having the agent as an intermediary also carries the risk of the agent not giving the complete required information. This is why, the IRDAI (Insurance Regulatory and Development Authority of India) has made it mandatory for each insurance company to provide potential customers of ULIPs with benefit illustrations. A benefit illustration gives the customer an idea of how premium will be invested, what charges will be incurred, and how your investment can grow. A benefit illustration also shows the surrender or maturity value at different points of the ULIP term. All of this will be drawn out keeping your age, premium value, and term in mind. Here are a few tips for reading the benefit illustration.

The basics

Gross investment returns are calculated at 4% and 8% growth rates as a mandate, and are shown in separate columns alongside each other. However, actual returns will depend on asset classes.

One column will have your name, your age, etc. along with premium amount, ULIP investment term, maturity, and fund allocation.

The breakup of premium is in multiple columns. The first column shows premium, the second shows premium allocation charges, the next shows available amount for investment. There are columns for other charges such as fund management charges, policy administration charges, etc.

Returns are classified into guaranteed returns and variable returns for better understanding.


The final three columns are key for decision-making. They show fund value, death benefit, and surrender value at the end of every year of the ULIP investment. If the benefit illustration is for, say, 20 years, these columns will show benefits of ULIP after 20 consecutive years. This helps you make a decision based on future goals like child’s education, buying a house, etc.


The yield after application of charges is shown in the ‘Net Yield’ column. It shows separate Net Yields for growth rates of 4% and 8%. The Net Yield is basically RIY (Reduction in Yield) or charges subtracted from growth rate. For example, if the overall charges amount to 1.75% at a growth rate of 8%, the Net Yield is 6.25% and the RIY is 1.75%.

By this logic, generally, higher the RIY, lower the Net Yield, and lower the returns.

Note that insurance companies are permitted to not take mortality charges into account for calculating this value. Ideally, they should illustrate values with and without mortality charges.

Things to look out for

  • Ensure that the benefit illustration is prepared on the insurance company’s official software that generally has a particular Version Number, unique ID number, company’s logo, name, and official address.
  • Ask for a confirmation for the minimum term of premium payment for keeping the policy intact.
  • Ensure that all assumptions including term, fund options, and sum assured given by you are taken into account.
  • Clear all your doubts with a financial advisor immediately.

Conclusion: Benefit illustrations are true transparency checks for ULIPs apart from showing the actual benefits of ULIP. Make sure you look at multiple of those before choosing a ULIP to invest in. A great option that you can consider for your next ULIP is the Invest 4G plan from Canara HSBC Oriental Bank of Commerce Life Insurance.

Invest 4G Canara HSBC Oriental Bank of Commerce Life Insurance’s Invest 4G plan will save you from the inconvenience of multiple life insurance plans and multiple investments. It offers 7 different funds with 4 different portfolio strategies to meticulously invest your savings in, along with a comprehensive life cover. It also boosts your savings with Loyalty Additions and Wealth Boosters. You can also avail the option of Return of Mortality Charge. You have the option of switching funds in order to explore possibilities of better returns, and even partially withdrawing them for contingencies.

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Annual Income (In Lacs)


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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