How ULIP Works - Benefits & Features Explained

2025-07-21

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Looking forward to creating wealth along with securing a reliable insurance cover? ULIPS can be your best bet! They provide you with a balanced approach to building wealth, helping you manage your finances better. While the working of ULIPs may seem difficult at first, their attractive features make them popular among those interested in securing their future. Thus, to make things easy, Canara HSBC Life Insurance is here to elaborate on how a ULIP works and what features it offers.

Key Takeaways

ULIP (Unit-Linked Insurance Plan) offers dual benefits: life cover + investment in equity/debt funds.
Premiums are split—part goes to insurance, the rest is invested in market-linked funds of your choice.
Offers flexibility to switch funds anytime based on market trends or financial goals.
ULIPs provide tax benefits under Sections 80C and 10(10D), subject to conditions.
Additional investments can be made through top-ups, and you can choose varied premium payment options.

What is ULIP: Uncover the Meaning

ULIP–unit-linked insurance plan is a unique financial instrument that combines the security of an insurance cover while offering you the potential for investment growth. A policyholder has to pay a premium towards their ULIP plan. The premium is divided into two portions: one portion is allocated towards securing insurance cover, while the remaining portion is invested in market-linked funds of the policyholder’s choice.

Let’s understand how a ULIP works with the help of an example:

Rakesh purchases a ULIP plan at the age of 35 with a 25-year tenure. A part of his ULIP premium payment is allocated, let’s say, towards his life cover of ₹1 crore. Additionally, as he chooses to invest in equity funds through ULIP, his remaining premium is allocated to his equity investment. Now, there are two scenarios:

Scenario 1:

Unfortunately, Rakesh passed away at the age of 40 in an accident. On his demise, his family will receive higher of the following amounts:

₹ 1 crore death benefit OR
Fund value at the time of demise

It ensures that Rakesh’s family receives the maximum financial support possible under the ULIP plan.

Scenario 2:

Rakesh survives the 25-year ULIP tenure. In such a situation, he will receive the accumulated fund value based on the performance of his equity funds. Such a wealth management option will help Rakesh to fulfil all his financial requirements.

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Explore the Top Features of a Unit-Linked Insurance Plan

Looking forward to investing in a ULIP plan? Have a look at its popular features below and make an informed investment decision:

Smart Investment Allocation

One of the best features of a ULIP plan is that it offers flexibility in investment allocation. Considering their risk appetite, policyholders can decide which type of funds to invest in. So, whether a policyholder prefers high-risk, high-return equity funds or stable debt funds, both options are open.

Similarly, ULIPs allow a policyholder to follow a balanced investment approach with a mix of equity and debt. Such personalisation of investment strategy is a big win for policyholders.

Fund Switch

Market conditions and your financial goals are subject to change. Having a ULIP plan can help a lot. Wondering how? It enables you to switch easily from one fund type to another, offering you the flexibility to alter your investment per your requirements.

If you want to protect your investment from market volatility, you can divert your investments towards debt funds during market slowdowns. You can also switch back to equity funds during market upswings. The best part? You can do all this anytime within the same plan without any additional charges.

Tax-Saving Benefits

If you are seeking tax benefits, ULIPs can offer them. Eligibility depends on the annual premium amount and adherence to specific conditions under the Income Tax Act. For example, under section 80C of the Income Tax Act, you can claim exemptions on ULIP premiums paid up to ₹ 1.5 lakh per annum.

Also, the maturity proceeds from a ULIP are tax-free under Section 10(10D), provided certain conditions are met. This tax exemption applies only if the total annual premium across all ULIPs does not exceed ₹2.5 lakh. If the premium limit is breached, the maturity proceeds will be taxed as capital gains.

Note: The policyholders must understand the conditions mentioned under section 80C, 10(10D), and other relevant sections under the Income Tax Act before investing in ULIP.

Top-Ups

Over time, your financial requirements can change and require you to enhance your investments from time to time. ULIPs can help with that. With the top-up feature, you can invest an additional amount over your regular ULIP plan. It can help you secure a larger amount at the plan’s term end.

Diverse Premium Pay Options

When it comes to ULIP premium payment, you have the liberty to choose payment intervals at your convenience. You can pay monthly, semi-annually, or annually. The policyholder can also opt for a single premium payment option if they do not prefer payment at regular intervals.

Did You Know?

Starting April 1, 2026, any ULIP policy with annual premiums over ₹2.5 lakh will be subject to tax on the returns earned.

Source: Upstox

Conclusion

Unit-linked insurance plan is a smart way to invest in markets while securing a credible life insurance cover. It offers an efficient way to channel your funds towards better wealth management avenues with good investment flexibility. Also, as you now know how ULIPs operate, you can make a better and more informed decision when investing in strategically crafted Canara HSBC Life Insurance ULIP plans, such as

Over time, a high percentage of your premium is diverted towards investment funds, enabling you to achieve your financial goals.

Glossary

Market Sentiment: The overall mood or tone of investors in the market, driven by news or emotions, influences buying and selling.
ULIP Schemes: A financial product combining life insurance and market-linked investments with tax benefits.
Portfolio: A mix of financial assets like stocks, bonds, and funds owned by an individual to grow wealth or manage risk.
Equity: An ownership share in a company, often purchased as stocks, offering growth potential but with higher market risk.
Debt Funds: Investments primarily in fixed-income securities like government or corporate bonds, ideal for stable, low-risk returns.

FAQs

There is no such right or wrong time to invest in a ULIP plan. However, as a policyholder, you must know that ULIPs have a lock-in period of 5 years. It means you cannot withdraw funds from your plan before the end of 5 years from investing. So, invest after considering your potential financial requirements.

Some of the charges associated with ULIPs include switching and top-up charges, partial withdrawal and premium redirection charges, etc.

Maximising returns on your ULIP plans depends on how well you monitor market changes and transfer the funds accordingly. It also depends on the funds you choose.

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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