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A unit-linked insurance plan is a plan that provides you with the double benefit of insurance along with investment simultaneously. A part of the regular premium payment goes towards a life cover, and the other part is invested in funds of your choice. ULIPs are also eligible for tax-saving under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Moreover, they are one of the rare investments that are exempt from Long Term Capital Gains tax. But, if you hold a big-ticket ULIP, that is a plan whose premium exceeds Rs. 2.5 lakhs, you will have to pay taxes. While the tax rate for such plans was 10% earlier, the latest budget has raised this to 12.5%. This rate will be applicable from April 1, 2026, onwards.
Due to the dual advantage of investment plus insurance along with tax-saving benefits, ULIPs have gained a lot of popularity. To extract maximum benefits of ULIP, it is important to learn how to manage ULIP funds
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You could have a variety of financial goals in life, like paying for your child's higher education, buying property, taking an international vacation, etc. You cannot think about how to manage ULIP funds without having these goals in sight. Your fund allocations should be in line with the goal.
For example, as a common practice, allocations are more equity-heavy in the beginning and mid-term. Since one of the benefits of ULIP is that it provides you with the option to switch from equity to debt at almost any time, you can switch to safer investments when the goal is nearing completion.
Higher risks can lead to higher returns, but not necessarily so. You need to evaluate if you can absorb risks, and if so, how much risk you can absorb. If you are expecting your income to increase steadily over the years, you can think of slowly allocating more to equity. However, if you would rather have a steadier and safer income flow, you can opt for balanced funds.
Asset allocation is basically investing across diverse asset classes. One of the best benefits of ULIP is that you can spread your risks and minimise losses as compared to investing in just a single asset class. The usual allocation in equity funds for ULIPs depends on your choice based on your risk-taking ability, which is why they are considered relatively safer. You can go for a high-risk, high-return portfolio if your risk appetite matches it. Determine a rough risk-to-return ratio of your allocations and try to balance them accordingly.
The insurance company will deduct an amount from the premium before allocating it to funds. This deducted amount goes towards different charges like mortality charge, premium allocation charge, policy administration charges, and fund management charge. Some ULIPs, such as iSelect Guaranteed Future Plus by Canara HSBC Life Insurance, even offer a return of the mortality charge when the policy matures. Calculating these charges will give you a good idea of how your money is being used.
When the policy matures, you receive the fund value. In order to make sure that this value is high, you need to keep track of market updates and the performance of funds. That way, you can decide better on when and how to switch your allocations, when to take bigger risks, and when to play safe. The death benefits of ULIP are the higher sum assured and fund value. A higher fund value can ensure higher financial security for your family upon your demise.
ULIP maturity benefits are taxed at 10% as LTCG if the annual premium is above ₹2.5 lakh, but death proceeds remain tax-free.
Source: India Today
When looking for great investment options, consider ULIPs. What makes them great? You can invest your money in equity, debt or a combination of both funds. So, you have the flexibility to choose your fund as per your risk appetite.
Moreover, if you learn how to manage ULIP funds well, you can derive maximum benefits out of them. For new investors, a good ULIP fund and good management are only the beginning of better financial discipline and planning.
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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.
Canara HSBC Life Insurance offers online ULIP plans that blend life insurance protection with investment growth, helping you build wealth while securing your family's future.
