New Age ULIPs: How Have ULIPs Evolved?

New Age ULIPs: How Have ULIPs Evolved?

Make smarter investments with ULIPs. Explore features, charges, and long-term benefits.

Written by : Knowledge Centre Team

2026-02-11

886 Views

7 minutes read

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The first ULIPs saw the light of day about two decades ago, in 2001. However, the product was aggressively popularised only since 2005, after private life insurers launched their versions of it. Now, every insurer presents its plan with a unique benefit that sets it apart, thereby leading to the evolution of ULIPs. 

Over the years, this has led to the emergence of ULIPs with a different set of benefits. Today, they have undergone significant changes from their original form. Unit linked insurance plans always had great potential, but one simple drawback – awareness. Let’s take a closer look at how ULIPs have evolved over the years.

Key Takeaways

  • ULIPs now offer zero allocation and admin fees for better wealth accumulation.

  • Define your financial goal before choosing the ULIP policy duration and fund type.

  • Fund switching enables you to adjust your ULIP portfolio in response to changing market trends.

  • Use bonus additions in long-term ULIPs to boost your returns.

  • ULIPs offer tax-free income after five years, provided systematic withdrawals are made.

A Contemporary Investment Option

Except for operational factors, ULIPs have never required a significant change in investor behaviour towards an insurance plan. Before ULIPs, life insurers have always been offering long-term investment plans with guaranteed returns coming 20-30 years later.

ULIPs are also long-term investments, but provide far more flexibility when it comes to investment. However, the lack of awareness of the long-term benefits of ULIPs among the new investors puts it in a bad light.

Another factor that contributed to the poor rapport with the investment was the initial charges of the plan. Although the charges subsided to a nominal level after a few years, the initial shock due to the high expense ratio was enough to irk the investors.

Being a unique investment product, it was also difficult to find a direct comparison with any other investment option. However, over time, a lot has changed with ULIP plans.

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What were the Features of a ULIP Plan Back in the Day?

ULIP plans have always been goal-oriented investment plans. If you have a long-term goal, ULIP would be your one-stop investment plan to secure it. The earliest features of ULIP plans included:

  • Life cover for the policyholder

  • Goal protection option under child plans

  • Option to switch between different funds

  • Option to withdraw funds from the plan partially after the lock-in period

What were the Charges of Old ULIPs ?

The older ULIP plans had multiple charges applied to each premium invested in the plan and to the accumulated corpus. Plus, there could be additional charges for various service requests like withdrawals and switches, depending on the plan. The common charges that were once applicable to every ULIP plan included:

  • Premium Allocation Charge: This charge is applicable to each invested premium and ranges between 3-9% of the premium amount.
  • Policy Administration Charge: Applied on the total corpus, this is usually less than 2% p.a. but may be capped at a specific amount.
  • Fund Management Charges (FMC): This charge is also applicable to the corpus. It ranges between 1% to 1.35% for active policies, depending on the type of fund.)
  • Mortality charge: Applied for the life cover amount (Sum at Risk), based on your age and other factors influencing the life insurance premium.

    The mortality charges in a ULIP plan are not applicable based on the life cover sum assured of the plan. Instead, the charge will consider only the Sum at Risk value for the total cost. The Sum at Risk (SAR) is the difference between your accumulated corpus and the higher of the following two numbers:
    1. Policy sum assured
    2. 105% of the total premiums paid

You can check your policy document for the details of the SAR calculation, as it may vary depending on the benefit options and policy features.

What are the Features of Modern ULIP Plans?

Modern ULIP plans offer far more flexible options when it comes to being useful to investors. A few of the unique and beneficial features of the plans are as follows:

  • Automatic Portfolio Management Options: If you are keen on building wealth, automating your investments and asset allocation should be your priority. While investment automation is simple with a bank mandate, asset allocation requires consistent effort from the funds.

    New-age ULIP plans offer multiple asset allocation options to manage your portfolio risk and safeguard your returns from equity funds. Some of the most useful portfolio management strategies are:
  • Systematic Transfer Option: Helps you to invest in equity funds with SIPs, even when you invest in the plan only once a year:

    1. Return Protection Option: As your equity portfolio grows, this option ensures that you secure your increasing wealth by liquidating and moving the gains to a safer fund. You will need to provide a threshold of gains. Once your portfolio reaches the threshold return the insurer will book the gains.

      Your overall portfolio risk will continue to drop as your portfolio ages in this strategy.
    2. Auto Funds Rebalancing: This strategy ensures that your portfolio risk remains consistent throughout the investment period. You define the ratio of investing in equity and debt funds which the plan will maintain by rebalancing the assets based on performance.

    3. Safety Switch Option: This option is available for the last four policy years and systematically transfers all your equity holdings to a liquid fund. You can use this strategy in combination with any of the three options above.
  • Bonus Additions for Long-term Investors: ULIP plans by Canara HSBC Life Insurance offer bonus additions for investors who are cautious and safe in the plan. If you continue to invest for a long period, typically more than 5 years, the insurer adds bonus units to your portfolio. The longer you invest, the more bonus units you receive.

    If you are a conservative investor, bonus units can enhance the compounded growth of your portfolio, helping you achieve your goal more quickly.
  • Systematic Withdrawal Option: The plan also offers a systematic withdrawal option to the investors, which you can use to start a monthly income. This benefit is especially useful if you are using the ULIP plans to save for your retirement goal.

    Since all withdrawals from ULIPs after the lock-in period of five years are tax-free, you can create a tax-free pension for yourself.

  • Lifetime Coverage: Lifetime coverage is another latest addition to the ULIP features. Under this option, you can continue your ULIP plan till the age of 100. This option is ideal if you want to build a tax-free pension that lasts a lifetime.

    These features make ULIP plans the best investment option for retirement savings. However, the only catch with ULIPs is that you cannot invest more than 10% of the base sum assured due to tax laws. Thus, you will need to use the ULIP plan as a supplementary investment plan for your retirement.

What are the Charges of Modern ULIP Plans?

Modern ULIPs are not only flexible with investments, but they also offer more features and benefits at a lower expense. The expenses in the new ULIP plan by Canara HSBC Life Insurance are:

  • Premium Allocation Charge: Nil

  • Policy Administration Charge: Nil

  • Fund Management Charge: Ranging from 0.8% to 1.35% depending on the type of unit-linked fund selected for investment

  • Mortality charge: As per the age of the policyholder and the SAR

  • Partial Withdrawal Charges: Nil

  • Switches Charges: Nil

What are the 5 Things to Remember When Buying a ULIP Plan?

When it comes to investing, ULIP plans are a great opportunity to grow your wealth, along with having life coverage security. Also, you keep on saving taxes under Section 80C every year, hence receiving three-fold benefits of the plan. However, it is a must to look at certain things before getting the investment journey started.

Here are 5 essential things you must know before buying a ULIP plan:

  1. Define Your Financial Goal Clearly: Before buying a ULIP plan, determine the purpose behind your investment. Whether you are saving for retirement, your child’s education, or wealth creation, your investment goal should decide your policy tenure and fund type. A well-defined goal will also help you measure your ULIP’s performance effectively over time.

  2. Understand the Fund Options and Risk Involved: ULIPs offer options in equity, debt, and balanced funds. Each comes with a different level of risk and potential return. Select a fund based on your risk tolerance and investment timeframe. For example, if you are investing for the long term and are open to some risk, equity funds can offer higher returns.

  3. Check the Charges and Fee Structure: Modern ULIPs have become more cost-efficient, but it's still essential to understand all associated charges. Consider the fund management charges, mortality charges, and any applicable premium allocation or administrative charges. 

  4. Make Use of Switching and Withdrawal Options: ULIPs enable you to switch between funds or partially withdraw after the lock-in period. Use these features wisely. Switch if market conditions change or your financial priorities shift. Partial withdrawals can be helpful during emergencies, but frequent use can derail long-term goals.

  5. Stay Invested for the Long Term: ULIPs are designed for long-term wealth creation. Exiting the plan right after the five-year lock-in can limit the compounding benefits. The longer you stay invested, the better you can benefit from market growth, bonus units, and tax efficiency.

Conclusion

ULIPs are no longer the complex products they were once perceived to be. Today’s ULIP plans are cost-effective, flexible, and tailored to meet a wide range of diverse financial goals. With features like automated fund management, tax-free returns, and lifetime coverage, ULIPs offer a perfect blend of insurance protection and market-linked growth. However, to maximise these benefits, it is crucial to select the right plan and stay invested with discipline.

At Canara HSBC Life Insurance, we offer the convenience of zero premium allocation charges, no policy admin fees, and multiple investment strategies to match your goals. If you aim to create wealth or secure your family’s future, this is a plan that supports you at every stage of life. Invest wisely. Invest for life.

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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