What-is-ulip-and-why-do-people-invest-in-it

What is a ULIP & Why Should You Consider Investing in One?

ULIP offers life cover plus market-linked growth. Discover how it works, its benefits, ULIP for long-term wealth building

Written by : Knowledge Center Team

2025-10-27

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7 minutes read

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Looking for the ULIP full form in insurance? ULIP stands for Unit Linked Insurance Plan, a single policy that combines life cover with market‑linked investments. In a ULIP, part of your premium secures insurance protection. At the same time, the rest is invested in equity, debt, or balanced funds you choose, giving your family protection plus long‑term growth potential. You can invest in equity, debt, or a combination of both funds according to your life goals and risk appetite.

In this guide, explore ULIP meaning, who they suit, and the key benefits and trade‑offs to consider before investing, so you can decide if a ULIP fits your financial goals.

Unit Linked Insurance Plan Meaning

A ULIP is a life insurance policy that pairs protection with investing by allocating your premium into two parts, one for life cover and the other into market‑linked funds such as equity, debt, or balanced options. Your money buys “units,” and each unit has a Net Asset Value (NAV) that’s updated daily based on market movement. Because returns track the market, your fund value rises or falls in line with the NAV; you can manage risk by spreading allocations across multiple ULIP funds and rebalancing them over time.

How Do ULIPs Work?

Just like every life insurance product, you are required to pay a small amount, known as premiums, to keep your policy running. Some ULIPs, such as Promise4Growth Plus Plan, come with Return of Mortality Charges, which means that all the deductions made during the policy term are added back into the fund value at the time of maturity.

Meanwhile, the premium you pay is allocated to different funds according to the ratio you choose.

After your premium is allocated to your chosen funds, units are assigned as per your contribution. Units are calculated based on NAV (Net Asset Value).

After units are assigned, the insurance provider deducts some charges from your fund. The various types of charges are:

  • Mortality charges

  • Policy administration charges

  • Fund management charges

  • Fund switch charges

Some charges are deducted monthly, while some charges are deducted quarterly.

After these charges, the next thing that comes to mind is how your funds are managed.

ULIP Fund Strategies and Withdrawals

In ULIPs, your fund is managed by highly qualified and able fund managers. Promise4Growth Plus offers you four dynamic fund management strategies.

  • Fund Strategies: These strategies have a predetermined method of operation, so you don't have to get involved much.
    1. Systematic Transfer Option (STP)
    2. Return Protector Option (RPO)
    3. Auto Funds Rebalancing (AFR)
    4. Safety Switch Option (SSO)

The safety switch option facility can be opted for only in the last 4 years of the policy. While the other three strategies can be used at any time.

  • Partial Withdrawal: In ULIPs, there is a 5-year lock-in period. After 5 years, you can start to withdraw from your policy.

Advantages of ULIP

The best ULIP offer several advantages to the average investor. Here’s why more people are choosing to buy the best ULIP offered by financial institutions.

  • Dual Advantage of Investment and Insurance : ULIPs are among the few investment options that offer you the benefits of investment and insurance combined. The insurance portion of the plan offers you a protective life cover. If you outlive the term of the plan, you receive maturity benefits. On the other hand, if you do not survive the plan, your beneficiaries receive death benefits that can help them cope with any financial crises following your demise. In addition to this, the best ULIP also allow your investment to grow over the years, resulting in a sizeable corpus that you can fall back on later in life.
  • Flexibility of Investment: Another reason people choose to invest in the best ULIP is the flexibility it offers. In most other investment options, the money you invest is kept in the exact option throughout the investment's tenure. In ULIP, however, you have the option to switch between debt, equity, or balanced funds, depending on your risk appetite. You can choose the kind of units you want to purchase right at the start of the investment tenure. Thereafter, depending on changes in the market and variations in your risk exposure, you can transfer your money to other low-risk or high-risk funds as needed.
  • Tax Benefits: The best ULIP also offer tax benefits to investors. Since ULIPs are essentially investment products, the premium you pay to invest in these plans is deductible as per section 80C of the Income Tax Act. You can deduct the premium paid during each financial year from your total income for that year, thereby reducing your tax liability. In addition, the maturity or death benefits received from the ULIP scheme are also tax-free under section 10(10D) of the Income Tax Act, subject to meeting certain conditions. With so many tax benefits to its credit, it’s no wonder that the ULIP is being increasingly preferred by savvy investors.
  • Choose Investment Option: ULIP are very flexible and thus provide you with complete freedom to choose between the different options to invest your money. You can invest either in equity funds, debt funds, or even in a mix of both, according to your preference and risk-taking abilities. The fund switching option in ULIPs also allows you to transfer your money between two funds during the policy term.
  • Achieve Life Goals: You work hard in your life to achieve your and your family’s goals. To achieve a life goal, proper investment needs to be made.

    ULIP offers you the opportunity to invest in the market. This allows you to accumulate substantial wealth, which can be used for your child’s higher education, marriage, or even your retirement. It also covers your life so that your family can still achieve their goals even if you are not present.
  • High Liquidity: In most investment options, you are given very little liquidity, as the funds are only available at maturity.

    But ULIP, on the other hand, has a partial withdrawal facility. After the lock-in period of 5 years, you can start to withdraw from your retirement corpus. This becomes very helpful when you need quick cash.

Who Should Buy a ULIP?

ULIP is one of the best investment options available in the market. While anyone aged 18 or above can invest, you should especially consider a ULIP if you fall into the following categories.

  • For Long-term Wealth Builders: ULIP generally has a long-term horizon. It has a lock-in period of 5 years during which you cannot withdraw your money. This keeps your money untouched and allows it time to grow. If you have long-term goals to achieve, consider a ULIP.
  • For Hands-on Investors: ULIPs provide you with complete flexibility and transparency in your investments. You know where and how much your money is invested.

    You can adjust the allocation of your money across different funds according to market conditions and risk tolerance. You can also set a fixed ratio of the funds to be invested. For example, 50% of your money is in equity funds, and the remaining is in debt funds.
  • For Changing Risk Appetite: You are not likely to have the same risk appetite throughout your policy. At times, you may want to take risks, while at other times, you prefer to play it safe.

    ULIPs provide you with flexibility in changing your fund allocation according to your risk appetite. There are various funds with different risks to choose from. If you're willing to take risks, consider investing in equity funds. Debt funds, on the other hand, offer low risk and safeguard your money.

Are ULIPs a Good Investment?

ULIPs are often regarded as a reliable investment option that can help you accumulate substantial wealth. Not only this, but it also offers protection to your family members with its life insurance component. Here is why it is a good investment option.

  • Long-Term Asset: As discussed, ULIPs are best for you if you have a long-term investment horizon. The ULIP has a lock-in period of 5 years. During this, you cannot make withdrawals. This allows the money to grow and helps you build savings habits.
  • Life Cover: You can invest in ULIPs for the long term, but what happens to your family if you pass away unexpectedly? ULIP takes care of this as it also covers your life. If you pass away during the policy term, your family will receive the sum assured as a death benefit. This will help them continue with their lives and achieve their goals.
  • Flexibility: ULIP gives you full flexibility as well as transparency. Under this plan, you can choose the funds you want to invest in and adjust the allocation ratio. It also provides flexibility regarding the premium payment method.

    The value of an investment and in which funds your money is invested is fully known to you.
  • Tax Benefits: ULIPs help you save your taxes as well. The amount you pay towards your premium for ULIPs is eligible for deductions of up to ₹1.5 lakhs in tax under Section 80C of the Income Tax Act 1961.

    The maturity benefit, which you will also receive, as well as the death benefit that your family receives, can be exempt from tax under Section 10(10D), provided you meet certain conditions.

How to Choose the Best ULIP?

As a popular investment option, many insurance providers offer a Unit-Link Investment Plan. Each has its own set of features and benefits. Thus, choosing a ULIP can be quite a task. Thus, consider the following factors to select a plan that best suits your needs.

  1. Purpose of Buying a ULIP: Start with a clear purpose, define why you’re investing in a ULIP and the specific goal you intend to meet.

    The goal of ensuring higher education for children may require you to take more risks and achieve high growth. On the other hand, creating a corpus for retirement will require you to be more cautious.

    ULIP allows you to invest in different funds according to your preference and risk appetite.

  2. Choose the Optimum Coverage: ULIP, apart from investing, also includes a life insurance component. Your family receives a death benefit if you pass away during the policy term.

    Assess your family's needs and future expenses to choose the most suitable life insurance. This would help make your family financially secure in your absence.

  3. Premium Funding Benefit: The best of ULIPs have this feature included. This feature ensures that your policy remains active even after your death and continues to run as intended. A policy with this feature will cover all outstanding premiums that remain unpaid after your death. The policy is continued till maturity. This feature is most beneficial when planning for goals such as a child’s education.

  4. Policy Charges: ULIPs associate themselves with a host of charges. These can be in the form of premium allocation charges, fund management charges, etc.

    Get information about all these charges before you buy your plan. Look for the policy with the fewest charges involved.

    In plans such as Promise4Growth Plus, low charges help maximise your savings, as only Fund Management Charges and Risk Charges apply, and the Return of Mortality Charges (RoMC) adds back mortality charges to your fund value at maturity.

  5. Fund Switches Allowed: This facility allows you to switch between the funds you have invested in during the policy. There is usually a limit set on the number of switches you can do for free.

Which Investor Class are ULIPs Most Suited for?

ULIPs are versatile investments suitable for almost every class of investor capable of investing a minimum of ₹2,000 per month. However, ULIP have features that make this instrument more useful for investors in a specific spectrum of classes:

  • You know what a ULIP policy is: It allows you to invest actively in different asset classes and enjoy tax-free growth.

  • You understand the risk-return relationship: Risk and return are inextricably linked. However, you can ensure stable returns by managing your investment risk. With ULIP, you can do that automatically.

  • You want portfolio transparency: ULIP have a very transparent investment profile. You can explore to find where your money is going anytime during the policy term.

  • You want to invest for the long-term but have the liquidity at the same time: ULIP allow partial withdrawals after the five-year lock-in period.

  • You need to invest in a large yet important financial goal: A ULIP not only offers aggressive growth to your savings but also provides the option to protect your goal.

Life Cover + Premium Protection:

ULIP has a default life cover available to your family, like any other life insurance plan.

However, you can also choose to protect the ultimate goal using the premium protection option.

With this feature, the insurer will not only pay the sum assured to your family upon your demise but also fulfil your remaining premiums.

You want to have a single plan for your retirement pension goal: ULIP plans like Promise4Growth Plus from Canara HSBC Life Insurance offer a century option. This option allows you to hold your ULIP until the age of 100. So, you can build your corpus until retirement and then draw a pension from it afterwards.

Fund Options Under ULIP

Insurance companies offer you many fund options to invest in. These can be broadly classified into these categories.

  1. Equity Funds: Equity funds are those funds that invest your money in stocks. The stocks that will be allotted to you are based on the NAV. Net Asset Value or NAV is the price of a single unit in a fund. Since the stocks are concerned with the stock market, the returns are prone to market fluctuations. This makes them risky, but also highly rewarding.

  2. Debt Funds: Debt funds invest in low-risk securities such as government bonds, debentures, etc. Since they are backed mainly by the government, these carry lower risks than equity. The returns from these funds are lower and stable.

  3. Hybrid Funds: This combines both equity and debt funds. Thus, in hybrid funds, you can get higher growth from the equity component as well as keep the risk low due to the presence of the debt component.

  4. Liquid Funds: Liquid funds invest in ultra-short-term securities that mature within a few months at max. This allows them to generate lower but very stable returns on investment. Thus, these funds are some of the safest to invest your money in.

How is ULIP Structured?

A ULIP is a variant of life insurance that also provides you with investment options. The investment component of ULIPs operates similarly to that of mutual funds. The premium you pay goes towards the fund you want to invest in, as well as life cover. ULIP provides you with flexibility in choosing your premium payment term and mode.

You can pay your premiums:

  • Monthly

  • Quarterly

  • Annually

Promise4Growth Plus comes in 3 different variants:

  1. Promise4Wealth Plus for life cover with fund value at maturity
  2. Promise4Care Plus with premium funding in your absence 
  3. Promise4Life Plus covers you till age 100 while helping you leave a legacy.

Working of ULIP Fund:

  • A ULIP combines the investments of many investors to create a pool of money. This pool is then invested in different funds. ‘Units’ are allotted to you based on the amount you have invested.

  • You can either invest in a single fund or multiple funds, according to your preference.

  • This fund is managed by qualified and experienced fund managers. They decide where the funds will be invested.

  • If the fund performs well and the market is bullish, you can get higher returns.

  • If you feel dissatisfied with the performance of your fund, you can switch to another investment as well.

Frequently Asked Questions before you Buy the Best ULIP Online

ULIP plan full form is Unit Linked Insurance Plan. In simple terms, ULIP insurance meaning is an insurance product that combines life cover with market‑linked investments in one policy.

Before you invest in a ULIP, make sure you go through the following things:

  • The goal you want to achieve with ULIP

  • Charges that are levied in ULIP

  • Fund options offered to you

  • Portfolio management strategies offered

  • Bonuses and other benefits

  • Tax-Benefits

  • Policy exclusions, terms, and conditions

The amount of premium that will go to the purchase of units varies from insurer to insurer. The various charges that come with ULIPs, such as premium allocation charges and administration fees, are deducted from the premium.

After the charges are deducted, a portion of the premium is also allocated towards life insurance. However, this is a very small percentage of the premium. The remaining amount is used to purchase units.

To provide users time to get to know the policy they have purchased, insurance companies give the customers a ‘free-look period’. During this period, you have the option to cancel your policy without penalties. This period is typically 15 days and is provided to ensure you have selected the correct policy.

Within this period, if you find that you are not satisfied, you can cancel your policy. The premium paid and the charges will be paid back to you. However, the expenses incurred by the policy, such as stamp charges and medical examination costs, will not be returned.

Net Asset Value, commonly known as NAV, is the value that is determined by deducting the value of liabilities and payables from the total value of all the assets held by the fund. When divided by the number of total outstanding units allocated to the investors in the fund, this Net asset value (NAV) becomes the Unit NAV.

Trends in the Unit NAV of the fund help you to assess the performance of the fund. Units are allocated based on the premium paid and the ongoing Unit NAV.

There is no single best time to invest in ULIP. If you are starting to plan for a long-term goal you have to achieve, then investment in ULIP can be a good idea.

ULIP offers you the opportunity to invest in the market and grow your wealth. This can be used to achieve goals such as retirement, child marriage, education, etc. At the same time, it ensures that your family stays protected even after you are gone by providing coverage for your life.

When you purchase a ULIP, you are required to choose funds in which you will invest. Based on the premium, units are assigned to you. The total value of all the units assigned to you is the ‘Fund Value’.

The fund value is calculated by multiplying the Net Asset Value (NAV) of an asset by the number of units held.

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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