5 reasons why ULIPs are cost-efficient products


A Unit Linked Insurance Plan is a dual-benefit product, which is a mix of investment and insurance in a single integrated plan. It had been introduced in the Indian markets in the year 1971. However, after the ULIP plan launch, 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 been pushing 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 product of investment.

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 for the administrative expenses paid towards 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 for the management of ULIP funds: equity funds and debt funds.

  • Mortality charge

It can be deducted for the provision of life coverage.

Online presence

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

Easy accessibility

Online ULIPs are the most convenient, affordable, and flexible type of 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 be eligible to claim a tax deduction 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 the maturity can be tax-free, according to Section 10(10D).

In a nutshell, the ULIP policy has attracted many investors to it after introducing new IRDA rules. A ULIP policy, which was 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 obtain a benefit illustration compulsorily before you make a final purchase.