ULIP as a Saving Option: Short-Term vs Long-Term Benefits Explained

2025-07-21

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Key Takeaways

ULIPs (Unit Linked Insurance Plans) combine life insurance with market-linked investments for wealth creation.
ULIPs come with a 5-year lock-in period. They are unsuitable for short-term liquidity needs.
They are ideal for long-term savings, offering compounding benefits, fund-switching flexibility, and tax advantages.
Short-term ULIPs can encourage disciplined savings but may yield lower returns due to market volatility and higher initial charges.

While planning your finances, you come across a number of investment options. Do these overwhelm you and leave you indecisive? You can explore Unit Linked Insurance Plans (ULIPs), which are financial tools that combine life insurance with market-linked investments, helping policyholders plan their finances. But a common question arises - are they a short-term or long-term savings option? Let us dive deep into the world of ULIPs to find the answer.

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What is ULIP?

Unit Linked Insurance Plans or ULIPS provide both wealth creation opportunities and financial safety to you and your loved ones – all under a single policy. The premium amount you pay is partially allocated into different market-linked instruments (equity and debt fund options), while the remaining goes to life insurance coverage. It is this dual structure that makes ULIP a unique investment choice.

Understanding the ULIP Structure

The flexibility that ULIPs offer makes them a popular choice among investors. You can select to diversify your money in a range of funds depending on your risk appetite and financial goals. And that’s not all! You can switch between funds depending on the market dynamics to gain more returns. For example, when you invest in ULIPs by Canara HSBC Life Insurance, you can invest your money in a variety of different funds based on your risk-taking ability.

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

ULIPs As a Short-Term Investment

ULIPs are usually considered a long-term investment plan. However, Canara HSBC Life Insurance offers short-term investment plans that also provide you with income for 5 to 7 years. Here’s how this can prove beneficial to you:

An Encouragement to Save

their lock-in period.. When you start investing in them, you learn the habit of saving money. Since ULIPs have a minimum 5-year lock-in period, they make a great short-term investment that keeps you disciplined to set aside money every month.

Secures Your Life

ULIPs come with dual benefits - they help in wealth creation and also offer life coverage. Thus, in the event of your sudden demise, your nominees will get the death benefits that come with the ULIP plan.

Improved Flexibility

When you invest your hard-earned money in ULIPs, a percentage of it is invested into market-linked funds. But the best part is that they give you control over your money. So, if you see a sudden fluctuation in the market, you can move your funds accordingly to safeguard your money or get better returns.

Know the Long-Term Benefits of ULIPs

ULIPs are meant for the long haul and can bring some amazing financial benefits to you. These include:

Cost Efficiency Over The Years

When you first invest in ULIPs, you may have to incur some high charges. This is because the initial amount invested and the returns are both low. Additionally, market fluctuations have an adverse effect on the returns. However, with the passing of time, the risk decreases, and they yield better results.

The Power of Compounding

Do you know that ULIPs work on the principle of compounding? This means that the initial returns that you get from your investment bring their own returns. When left to grow over a long period, your wealth grows manifolds.

Avail of Tax Benefits

Under sections 80C and 10(10D) of the Income Tax Act, 1961, ULIPs are eligible for tax benefits. The premiums you pay can get standard deductions. Additionally, under certain conditions, the maturity amount can also be tax-free. This improves the net returns on your investment.

Fulfil Your Mid-Term Goals with ULIPs

One of the biggest advantage of ULIPs is the availability of partial withdrawals once the 5-year lock-in period is completed. With this, fulfil your financial obligations that may change according to your family’s evolving needs. Thus, aligning your ULIP tenure with your financial goals can help you make the most of these plans.

Know the Potential Cons of ULIPs

While ULIPs offer a wide range of benefits, they have a few disadvantages you should know when investing in them. These include:

The returns on ULIPs are subject to the market conditions. Hence, there is always a percentage of uncertainty governing these policies.
In the initial years, it may seem like you are paying a lot of charges for very less returns. But with the passing years, as the returns improve, these will balance themselves.
Looking for quick liquidity? ULIPs are not meant for you as these come with a mandatory 5-year lock-in period.

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.

Conclusion

In the world of investments, ULIPs are the champions of long-term strategies. Their structure and benefits align with long-term goals. With policies like ULIP plans by Canara HSBC Life Insurance, you can opt for partial withdrawals after the lock-in period that fulfil your mid-term goals. However, expecting short-term returns from them can be disappointing due to market volatility. So, give some thought to your financial goals and invest in ULIPs wisely. Choose the best funds as per your risk appetite. Stay updated with the market conditions to diversify your funds when needed to make the most of your ULIPs.

FAQs

No, the returns on ULIPs are subject to the market conditions and may vary depending on the ups and downs.If you are looking for guaranteed returns, consider exploring insurance plans that offer guaranteed maturity benefits, subject to policy terms.

Your ULIP maturity proceeds are tax-free if

You purchased your ULIP on or after 1st February 2021, and the annual premium is less than ₹2.5 lakhs
The total premium is not more than 10% of the sum assured

If the total premium paid is ₹2.5 lakhs or more, the maturity proceeds will be taxable.

When you invest in ULIPs with Canara HSBC Life Insurance, the common charges you incur are:

Premium allocation charges
Policy administration charges
Fund management charges
Partial withdrawal charges
Mortality charges
Switching charges
Rider charges
Surrender charges

Remember that these charges will apply based on the actions you take during the course of holding the ULIPs.

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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