How to read the benefit illustration of your ULIP?

How to Read the Benefit Illustration of Your ULIP?

Learn how to read a ULIP benefit illustration, understand charges, returns, RIY, and make informed investment decisions

Written by : Knowledge Center Team

2026-01-10

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7 minutes read

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ULIP or Unit Linked Investment Plan is a popular insurance-cum investment option, especially for beginners. They offer multiple benefits, including tax deductions on eligible premiums under Section 80C and tax exemption on maturity/death benefits under Section 10(10D) of the Income Tax Act (under certain conditions). 

ULIPs offer a good balance between calculated risks and secured returns, along with life insurance cover. However, just like any other investment or policy, you must understand the plan in detail before you make the final decision. Here’s a primer on how to read and interpret the benefit illustration of a ULIP before selecting one.

Key Takeaways


  • A benefit illustration is a mandatory document issued by insurers to show projected ULIP values at 4% and 8% assumed returns.
  • It clearly outlines premium allocation, charges, and fund growth projections, helping you understand cost impact.
  • Net Yield and RIY help measure the effect of charges on your overall returns.
  • The illustration shows year-wise fund value, death benefit, and surrender value, aiding long-term planning.
  • Always verify assumptions and policy details before investing to ensure alignment with your goals and risk appetite.

What is a ULIP?

The meaning of ULIP is simple. They are life insurance plans that combine life cover with a market-linked investment component. A ULIP premium is allocated between life insurance cover and investment in funds. These funds are selected as per your risk appetite. You can choose from debt funds, equity funds, or balanced (hybrid) funds as per your financial goals and risk preference.

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What is a Benefit Illustration in Insurance? 

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 prospective customers of ULIP with a benefit illustration. 

A benefit illustration gives the customer an idea of how the premium will be invested, what charges will be incurred, and how the investment can grow. It 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.

Understanding the Key Components of a Benefit Illustration

Gross investment returns are calculated at 4% and 8% growth rates as mandated by IRDAI, 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 the premium amount, ULIP investment term, maturity, and fund allocation.

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

Returns are illustrated at assumed rates of return (4% and 8%) and are not guaranteed for a better understanding.

Projected Policy Benefits Over the Policy Term

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 the benefits of ULIP after 20 consecutive years. This helps you make a decision based on future goals like a child’s education, buying a house, etc.

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Did You Know?

ULIPs offer a free-look period of at least 15 days, during which you can review the policy terms and cancel it if you’re not satisfied


Source: IRDAI

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Understanding Net Yield and Reduction in Yield (RIY)

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 in ULIP) or charges subtracted from the 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 in ULIP is 1.75%.

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

Note that insurance companies may exclude mortality charges while calculating RIY, as permitted under regulatory guidelines. Ideally, they should illustrate values with and without mortality charges.

Things to Look Out for in a ULIP Benefit Illustration

Before relying on a benefit illustration for decision-making, it is important to verify that the document is authentic, complete, and aligned with your inputs.

  • Ensure that the benefit illustration is prepared on the insurance company’s official software and contains a Version Number, unique ID number, company’s logo, name, and official address
  • Ask for confirmation of the minimum premium payment to keep the policy intact in force, as ULIPs generally have a lock-in period of five years as per IRDAI regulations
  • Ensure that all assumptions, including term, fund options, and sum assured given by you,, are correctly reflected in the illustration
  • Clear all your doubts with a financial advisor or the insurer’s representative immediately

Conclusion

Benefit illustrations act as transparency tools for ULIPs, apart from showing the actual benefits of the plan. They empower you to make informed decisions by presenting projected returns, charges, and fund performance under various scenarios. Understanding these illustrations helps you align your investment with your financial goals and risk appetite. Make sure you review multiple illustrations before making the final choice.

Glossary

  1. Benefit Illustration: A statement showing projected ULIP values, charges and benefits at 4% and 8% return scenarios
  2. Net Yield: The effective return after deducting all applicable policy charges from assumed gross returns
  3. Reduction in Yield (RIY): The difference between gross return and net yield, reflecting the impact of charges
  4. Surrender Value: The amount payable if a ULIP is discontinued before maturity, subject to lock-in rules
  5. Mortality Charges: Charges deducted to provide life cover, based on age, sum assured and risk profile
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FAQs

The benefit illustration meaning refers to a detailed statement provided by an insurer that shows how your policy is expected to perform over time. In ULIPs, it explains how your premium is allocated, the charges deducted, and the projected fund value, death benefit, and surrender value at assumed return rates (typically 4% and 8%). It helps you understand the impact of costs and make an informed investment decision.

The target gross reduction in yield meaning refers to the difference between the assumed gross return (such as 4% or 8%) and the net yield after deducting all applicable charges in a ULIP. Reduction in Yield (RIY) shows how much policy charges impact your overall returns. A higher RIY means a greater reduction in effective returns, while a lower RIY indicates better cost efficiency.

Non-guaranteed benefits in a ULIP illustration refer to the projected fund value, maturity value, or surrender value calculated using assumed return rates such as 4% and 8%. These figures are only indicative and depend on actual market performance. Since ULIPs are market-linked products, the final returns may be higher or lower than those shown in the illustration.

ULIP premiums are determined based on factors such as the selected sum assured (life cover), age, gender, and health profile. The cost of providing life cover is deducted as a mortality charge, which is calculated on the sum at risk, the difference between the sum assured and the prevailing fund value, and is typically deducted on a monthly basis from the policy’s fund value.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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