5 reasons why ULIPs are cost-efficient products


A Unit Linked Insurance Plan is a dual-benefit product, combining investment and insurance in a single integrated plan. It was introduced in the Indian markets in the year 1971. However, after the launch of the ULIP plan, it was severely criticized for its high cost and ULIP plan returns. Due to the expensive ULIP charges, it failed to penetrate the market years ago.

On the other hand, purchasing a ULIP plan now is no longer an expensive affair. Due to the negative impact of the ULIP charges, the Insurance Development and Regulatory Authority (IRDA) announced new rules to turn a ULIP product into an affordable financial plan. Let’s go through the top five reasons mentioned below to understand why ULIPs have become cost-effective:

insurance IRDA rules

The introduction of the IRDA regulations ensured the massive penetration of a ULIP product in the market. After IRDA formulated new guidelines for a ULIP policy, your insurer might have pushed you to invest in a ULIP plan. Today, a ULIP policy is usually known for low costs and high returns. The new rules have turned a ULIP product into a cost-effective and transparent investment product.

Low charges

Today, you can purchase a ULIP product at an affordable rate. The primary reason for its affordability can be the presence of low charges. Typically, it can consist of the four most common ULIP charges:

  • Policy administration charge

It can be deducted from the administrative expenses paid toward the maintenance of the ULIP policy.

  • Premium allocation charge

It can be deducted from the amount that you pay as a premium.

  • Fund management charge

It can be deducted to manage ULIP funds, equity funds, and debt funds.

  • Mortality charge

It can be deducted from the provision of life coverage.

Online presence

Due to the emergence of e-commerce, many insurance companies have availed themselves of ULIPs on their respective platforms. With online ULIPs, you can buy them directly from your insurers’ online portal due to zero involvement of the insurance agents or third parties. Moreover, purchasing a ULIP policy can be affordable since it might not involve third-party commission charges.

Easy accessibility

Online ULIPs are the most convenient, affordable, and flexible investment option. All you have to do is follow the three most common steps mentioned below:

  • Select a ULIP policy based on your preference and financial goals.
  • Make the online payment using your debit or credit card.
  • Purchase the ULIP policy.

Tax benefits

Apart from its dual benefits of insurance and investment, a ULIP plan can provide you with dual tax benefits. Since a ULIP policy falls under Section 80C and Section 10(10D) of the Income Tax Act, 1961, you can reduce your tax liability.

Under a ULIP policy, you can receive an exemption on the following:

  • Premium

Following Section 80C, you can claim a tax deduction of up to Rs. 1,50,000 on your taxable income.

  • Maturity proceeds

A ULIP policy can offer you the whole amount on the maturity of the ULIP policy. The money received on maturity can be tax-free, according to Section 10(10D). In a nutshell, the ULIP policy has attracted many investors since the introduction of new IRDA rules. A ULIP policy, once an expensive affair, has become a cost-effective investment solution today. Although ULIPs offer low charges, you should not be fooled by the low costs. Select a credible insurance company and compulsorily obtain a benefit illustration before you make a final purchase.