Definition
Unit Linked Insurance Plan
A Unit Linked Insurance Plan (ULIP) is a life insurance product that combines life cover with investment in market-linked funds chosen by the policyholder.
In a ULIP, part of the premium buys life cover and the rest is invested, after charges, in equity, debt or balanced funds whose value is tracked through a daily NAV. The policyholder bears the investment risk and can switch funds, make partial withdrawals after the five-year lock-in, and pay top-ups.
ULIP charges, allocation, administration, mortality and fund management, are capped by IRDAI through the reduction in yield limit. Tax treatment changed in recent Budgets: high-premium ULIPs (aggregate annual premium above the threshold) lost full Section 10(10D) exemption, with gains taxed like capital assets.
Related terms
- Reduction in YieldReduction in yield is the difference between a ULIP's gross investment return and the net return to the policyholder after all charges.
- Lock-In PeriodThe lock-in period is the minimum span during which a ULIP's funds cannot be withdrawn or fully accessed, set at five years in India.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.