How to choose best unit linked insurance plans?

How to choose best unit linked insurance plans (ULIP)How to choose best unit linked insurance plans?

There are several insurance plans, one among is Unit linked insurance plan (ULIP). What is unit linked insurance plan (ULIP) and to whom this would be best suitable. How to choose best unit link insurance plan (ULIP)?

What is Unit linked insurance plan?

Unit linked insurance plan is a combination of Insurance and investment. With the insurance premiums paid by insurer, part of the premium amount is taken away for risk cover and admin charges, balance amount is invested in mutual funds by way of allotting mutual fund units.

How to choose best unit linked insurance plans?

  1. Track the performance of ULIP: The returns on the ULIP depend upon performance of the fund in the capital market. Track the performance of the ULIP before investing in such ULIP’s.
  2. Choose the scheme suitable for you: There are various schemes offered in ULIP like Equity funds, Debt funds, balance funds etc., Hence the risk in ULIP is borne by the insurer/investor. Aggressive investors can take ULIP with equity funds scheme. Moderate investors can take ULIP in combination of equity and debt funds scheme. Conservative investors can take ULIP with debt funds scheme.
  3. Keep an eye on expenses charged in ULIP: There are various charges allocated by insurance companies before transferring the money towards fund units. These charges are generally ranging between 2.5% to 3% depending on the insurance company. Choosing insurance company that charge low fees would benefit the investor.
  • Premium allocation charges
  • Mortality charges i.e. the cost of insurance coverage
  • Fund management fees
  • Administration charges for running the fund
  • The amount deducted for pre-mature withdrawal and is charged by cancellation of units.
  • Fund switching charges. These are charged after the free switch options are over.
  1. Switch option available: ULIP would provide option for you to switch among the various funds. Hence if you think that markets have reached high, switch ULIP option to debt funds to reduce the risks. Insurance companies offer free switch options in a year. After these free switch options, they charge some fees when you use additional switch options.
  2. Lock-in period: You can withdraw the ULIP after the lock-in period of 5 years.

Some more facts about Unit linked insurance plan

  1. Know that it is long term investment strategy: The investment in ULIP should be done for long term as equity markets provide good returns over a period of time. These should not be treated as short term investment options.
  2. You can win by adopting various strategies during bullish market: There are several investors who surrendered the ULIP units when market crashed. It is the time where one should invest during such market falls to en-cash and win in the long run. You should know this before considering any ULIP.
  3. You should know that you can do Top-ups in ULIP: Investors can invest additional money into ULIP which is called “Top-ups”. Use the top-ups when markets are in downfall so that you would get more fund units and your value of investment would increase over a period of time.
  4. High charges for ULIP in initial years: Insurance companies charge high charges during initial years of ULIP. So, if you want to withdraw the ULIP within short period, your investment value would be reduced.
  5. ULIPS provide tax benefit: Like any other life insurance policy, ULIP’s are eligible for tax exemption under 80C of the income tax act.

Conclusion: Unit linked insurance Plan provides an option for investment along with insurance cover. However investment in such ULIP’s should be done with long term investment objective. Consider these tips and invest in best unit linked insurance plan.

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Best Unit Linked Insurance Plans

Suresh KP


  1. Hi Suresh,

    Can you tell me about – Canara HSBC Oriental Bank of Commerce Life Stay Smart Plan.

    My dad has been investing Rs.30,000 annually in this policy since March 2010, but it is not giving good returns & currently it is in Red.

    Should i pay the next premiun due or withdraw the policy & invest somewhere else.


  2. Suresh,


    With all your experience can you please suggest few of the best ULIP plans, as despite having read and researching I being tatally alien to this industry am still confused. Your help is much apprecaited in this regards.

    Muralidhar K

    1. Murali, ULIP’s are insurance-cum-investment products. However due to high charges in initial period, they are not popular now. If you are looking for such a product, invest in term insurance plan and seperately invest in mutual funds so that the objectives are met.  

  3. Hi Suresh Ji,

    I am investing in SBI LIFE-UNIT PLUS II PENSION plan since Dec 2009(Rs 24,000 p.a). Three yr lockin period is over, should i keep investing or surrender this policy.Kindly advise the alternate of this as the return is very nominal.

    1. Jeetu, For ULIP’s, insurance companies would charge high allocation and admin charges in initial years. Generally your investment value would be less than your investments upto 4/5 years. Hence if you discontinue policy, you would incurr losses. Retain them.

  4. Hi suresh..

    This is good article explaining pros and cons of ULIP..

    7 months ago..i invested in ICICI LIFTSTAGE WEALTH II plan with triggered strategy…with half-annual premium…

    however,my fund value is still less than investment (it is invested in multi-cap growth fund)..

    As you suggested, i am considering it as long-term investment.

    Please let me know if i need to do any changes to my policy to get more returns..

    I am able to topup with small amounts(<10000) as well annually. curently my annual premium is 48000/-

    1. Hi Nagendra, ULIP’s charge high expenses during the initial period of insurance policy, hence you would see that your investment is low compared to what you have invested. Since you have already taken the policy, consider other term insurance plans if you wish you increase your insurance risk coverage.

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