You want life insurance to protect your family — but you also want your money to grow over time. That’s where ULIPs (Unit Linked Insurance Plans) come in. They promise the best of both worlds: investment returns along with life cover. Sounds ideal, right? But before you sign up, it’s important to understand how ULIPs really work — from how your premium is split, to the charges involved, and what kind of returns you can realistically expect.
Let’s break it down simply so you know if a ULIP actually fits your financial goals in 2025.
Understanding ULIPs: The Basics
ULIP stands for Unit Linked Insurance Plan — a unique financial product that offers the dual advantage of life insurance protection and investment returns. When you pay your premium, a portion goes toward life cover, while the rest is invested in funds of your choice (equity, debt, or hybrid).
Essentially, ULIPs are market-linked insurance plans, where the returns you earn are based on how the underlying investment performs. You can track NAV (Net Asset Value), switch between funds, and even choose how aggressive or conservative your portfolio should be.
How ULIPs Works
Most insurers have made ULIPs more flexible, transparent, and digital-friendly. You can now monitor performance in real-time, switch funds instantly via mobile apps, and access better disclosure of charges.
Some modern updates include:
- Zero premium allocation charges in many plans
- Lower fund management fees due to IRDAI regulations
- Return of mortality charges (ROMC) after policy maturity
- Auto-rebalancing options based on your age or risk profile
ULIPs are no longer rigid or high-cost instruments they were a decade ago. They now compete with mutual funds on transparency — while offering the added benefit of life coverage.
ULIP vs Term Insurance vs Mutual Funds
| Feature | ULIP | Term Insurance | Mutual Funds |
|---|---|---|---|
| Life Cover | ✅ Yes | ✅ Yes | ❌ No |
| Investment Option | ✅ Market-linked (Equity/Debt) | ❌ No | ✅ Yes |
| Tax Benefits | ✅ Sec. 80C + Sec. 10(10D) | ✅ Sec. 80C + Sec. 10(10D) | ✅ Sec. 80C (ELSS only) |
| Liquidity | ⏳ 5-year lock-in | 🚫 No liquidity | ✅ Open-ended or fixed-term |
| Ideal For | Insurance + Long-Term Growth | Pure protection | Pure investment |
Tax Benefits of ULIPs
ULIPs are eligible for tax deductions under Section 80C for premiums up to ₹1.5 lakh per year.
Additionally, the maturity proceeds are tax-free under Section 10(10D) — provided your annual premium is not more than ₹2.5 lakh across all ULIPs bought after Feb 1, 2021.
In 2025, the ₹2.5 lakh limit is still in place, so investors need to ensure they stay within this cap if they want tax-free maturity amounts.
Pros of Investing in ULIPs
Dual benefit of insurance and investment
Tax-saving potential under Sections 80C and 10(10D)
Freedom to switch between equity, debt, or hybrid funds
Long-term wealth creation (5+ years)
Maturity bonuses or ROMC in many modern ULIPs
Cons to Watch Out For
5-year lock-in period — you can’t withdraw before that
Market risk — ULIP returns depend on fund performance
Complexity — can be confusing for first-time investors
Charges — though reduced, they still exist (fund management, switching, mortality, etc.)
Who Should Buy ULIPs ?
- Young professionals looking for long-term goals (like retirement or child education)
- Tax-savvy investors who want 80C + maturity exemption benefits
- Disciplined savers comfortable with locking money for at least 5 years
- Individuals who want insurance + investment in one product
Avoid ULIPs if your primary goal is pure investment (consider mutual funds) or pure insurance (opt for term plans instead).
ULIPs can offer long-term growth with life cover, but they’re not the only option out there. If you’re still weighing your choices, don’t miss our side-by-side breakdown: Endowment vs ULIP vs Term — Which Life Insurance Plan Actually Makes Sense for You?. It’ll help you decide which plan suits your financial goals best.
Are ULIPs Still Worth It in 2025?
Yes — but only if you understand what you’re signing up for.
ULIPs have evolved significantly over the years. If you’re someone who prefers a structured investment, needs life cover, and wants tax benefits, ULIPs can be a smart long-term tool. But don’t jump in blindly — compare plans, understand costs, and check historical NAV performance before choosing.
If you’re a gig worker, small business owner, or salaried employee seeking a one-stop solution for insurance + wealth growth, ULIPs may just tick all the right boxes.
Always compare claim settlement ratio, fund performance, lock-in flexibility, and ROMC feature before selecting your ULIP provider. Plans from trusted names like HDFC Life, ICICI Prudential, SBI Life, and Bajaj Allianz offer digitally trackable ULIPs in 2025.
