What is a ULIP Plan? Benefits, Features & Tax Savings Explained

Managing your finances often feels like a balancing act, growing your wealth while keeping your family financially secure. Normally, this means investing in mutual funds and buying life insurance separately.

A Unit Linked Insurance Plan (ULIP) changes the game by combining both: it offers life cover while your money grows through market-linked investments, helping you protect your family and build wealth at the same time.

So, let’s break down ULIP in a way that’s easy to understand, from how they work, to types, benefits, charges, and even tips to get the most out of them. 

What is an ULIP Plan?

At its core, a ULIP is a marked linked plan that gives you:

• Life insurance coverage gives financial protection for your family
• Market-linked investment means your money is invested in equity, debt, or balanced funds

Here’s how it works: when you pay a premium, a portion goes toward insurance, and the rest is invested. Over time, the investment grows according to market performance, giving you both security and the potential for wealth accumulation. This dual advantage is one major ULIP benefit that sets it apart from traditional insurance. 

How Does ULIP Work?

ULIPs function like a well-coordinated system:

1. Premium Split: A part of your premium is for life cover, and the rest is invested.
2. Fund Investment: Choose funds based on your comfort with risk: equity, debt, or a mix.
3. NAV Tracking: Returns depend on the Net Asset Value (NAV), reflecting fund performance after charges.
4. Fund Switching: You can shift investments between funds as your goals or market conditions change.
5. Maturity or Death Benefit: At maturity, you get the fund value. If something unexpected happens, your nominee receives the higher of the sum assured or fund value.

Why Invest in ULIPs?

ULIPs let you plan for life’s uncertainties while still aiming for growth. ULIPs are especially useful if you want a balanced approach to financial planning:

• Grow wealth for long-term goals like retirement or education
• Ensure your family is financially secure in emergencies
• Enjoy tax savings under Section 80C
• Stay flexible, shift between equity and debt based on market trends

These factors together underline why understanding what the ULIP plan is important for anyone looking to combine protection with wealth creation.

What is the Lock-in Period of a ULIP Plan?

All ULIPs come with a five-year lock-in period. This ensures your investment stays focused on long-term growth:

• Before 5 years: Withdrawals are restricted and allowed mainly in emergencies
• After 5 years: You can withdraw partially or exit completely

The lock-in period encourages disciplined investing while the insurance part continues to provide cover.

What are the Types of ULIP Plans?

ULIP plans are designed to cater to different financial goals and risk appetites. Some of the popular ULIPs from Shriram Life include:

1. Shriram Life Growth Plus

Aimed at long-term wealth creation, this plan focuses on growing your investment through a mix of equity and debt funds while providing life cover.

2. Shriram Life Fortune Builder

This ULIP is suitable for investors looking to balance risk and returns, offering flexibility in fund allocation to match changing market conditions.

3. Shriram Life Golden Jubilee Plan

Designed for legacy planning, it provides long-term insurance cover along with consistent investment growth over the years.

4. Shriram Life Wealth Pro

A flexible plan that allows switching between multiple fund options, helping you optimise your portfolio based on risk preference and financial goals.

5. Term Plans

While primarily focused on life cover, some term plans can be linked with investment options to provide a basic wealth creation component alongside protection.

What are the Benefits of investing in a ULIP Plan?

ULIPs offer several advantages that make them appealing for long-term financial planning:

Dual benefits of insurance and investment

You receive life cover for financial protection while your investment grows in market-linked funds.

Flexibility

Switch between equity, debt, or balanced funds according to your changing goals and market conditions. 

Liquidity

Partial withdrawals are allowed after the lock-in period, helping you meet short-term needs without disrupting your long-term plan. 

Goal-based Planning

ULIPs can be aligned with life goals like retirement, children’s education, or wealth transfer, providing a structured approach to financial planning. 

Tax Benefits

Premiums are eligible for deductions under Section 80C, and maturity or death proceeds may be tax-free under Section 10(10D) , subject to conditions. 

What are ULIP Charges?

Understanding ULIP charges is important as they impact overall returns. Key charges include:

1. Administrative Charges

These cover the policy administration costs and are usually deducted on a monthly basis. 

2. Fund Management Charges

A percentage of the fund value is charged for managing investments. 

3. Fund Switching Charges

If you exceed the free fund switch allowance, a small fee may apply. 

4. Surrender or Discontinuance Charges

Charges are applied if you exit the policy before the lock-in period. 

5. Mortality Charges

This is the cost of providing life insurance cover, which varies based on age and health. 

6. Premium Allocation Charge

Deducted before the investment portion is allocated to funds. 

7. Partial Withdrawal Charges

Charges are applicable if withdrawals exceed the allowed free limit after the lock-in period. 

How to Maximise Returns from a ULIP?

Getting the most out of a ULIP isn’t about luck, but it’s about discipline, smart decisions, and long-term planning. Here’s how you can optimise your returns: 

1. Start Early and Stay Invested Long-Term

Starting early allows your investments to benefit from compounding. Even small regular premiums can grow significantly over time.

2. Utilise Fund Switching Strategically

Switch between equity, debt, and balanced funds based on market conditions and risk preference. This helps optimise returns while managing risk.

3. Consistent Investment

Paying premiums regularly ensures steady growth and uninterrupted compounding. Skipping payments can slow progress toward your long-term goals.

4. Review Your Portfolio Periodically

Check your ULIP portfolio regularly to track performance and rebalance allocations if needed. This keeps your investment aligned with your goals and risk appetite.

5. Consider Top-up Premiums

Adding top-up premiums when possible accelerates fund growth. These contributions benefit from the same compounding without requiring a new policy.

Understanding ULIP Tax Benefits in Detail

ULIPs come with several tax advantages that make them appealing for long-term planning:

1. Tax Deduction on ULIP Premiums under Section 80C

Premiums paid for ULIPs are eligible for a deduction of up to ₹1.5 lakh per financial year. This reduces your taxable income while helping you invest in long-term financial goals.

2. Tax Exemption on Maturity/Death Proceeds under Section 10(10D)

The maturity payout or the sum received by your nominee in case of death is generally tax-free, subject to certain conditions. This ensures that your family receives the full benefit of your ULIP without losing a portion to taxes.

3. Tax Implications on Partial Withdrawals

After the mandatory lock-in period of 5 years, partial withdrawals are generally exempt from tax, making ULIPs flexible if you need funds for specific goals.

4. Tax on Switching Between Funds

Switching between equity, debt, or balanced funds within a ULIP does not trigger any tax event. This gives you the freedom to manage risk without worrying about short-term taxation.

5. GST on ULIP Charges

Certain charges, like fund management fees and premium allocation, are subject to GST. While these are small, they are important to consider when calculating net returns.