Unit Linked Insurance Plan or ULIP is an effective way of seeking insurance and investment in one product. In one premium payment, you can opt for life insurance coverage and also make an investment in market-linked securities. Thus, ULPs are also alternatively referred to as insurance-cum-investment plans. 

A ULIP works by dividing the premium into two parts in a pre-defined ratio as per the policy’s terms. One part is approportionated to provide protection by way of a life insurance plan, while the other part is used to meet financial goals via investment in market-linked securities. Thus, using ULIP covers, you need not worry about missing out on investment opportunities while the policy offers protection for your life. 

The investment component of a ULIP is what every policyholder can decide upon. It is invested in different funds that are designed to meet specific financial goals. Equity funds, debt funds, balanced funds, liquid funds and cash funds are the different funds in ULIPs where an investment can be made. Depending on your risk-taking capacity, you can opt for a specific fund. 

Among the above-mentioned funds, equity funds are selected by policyholders for their high growth potential. However, they have the highest risk of the lot. Since these funds directly invest in stocks of companies, the fluctuations in financial markets directly affect the fund’s performance. 

ULIPs and Equity investing

• As described above, equity funds are those funds in ULIPs that invest directly in equities. For that reason, these funds have a high risk but come with higher rewards. So, before choosing to invest in an equity fund, it is best to assess your risk appetite and only then make an investment. 
• When investing in equity funds in ULIPs, you can use the fund switching option to change your fund under the policy in case of unsatisfactory performance. NAV or Net Asset Value is an effective metric that can help you gauge the performance of the fund and accordingly switch (if needed). 
• Depending on your financial goals and risk appetite, either an entire equity fund can be chosen or a balanced fund that invests in equities as well as debt funds. 

What are the advantages of investing in equities through ULIPs?

Equity Investment in ULIPs or insurance-cum-investment plans can have noteworthy benefits, some of which are listed below – 

• Wealth creation

The primary benefit of equity funds in ULIPs is that of accelerated wealth creation. These equity funds, as mentioned above, directly invest in stocks of companies and thus provide a higher return, in tandem with financial markets. Equity funds are also an effective way to avoid inflation that affects the overall investment in the future. Over the tenure of the ULIP, the growth in equity funds will align with market circumstances that result in significant rewards. 

• Tax benefits

All premium payments made to ULIPs, whether equity funds or not, are eligible for a deduction in the income tax return under section 80C. This section allows a deduction of up to ₹1.5 lakhs, thereby offering policyholders an effective way to make investments and avail of tax benefits.

• Ease of control

The portion that is invested in these funds is managed by professionals that specialise in it. Thus, as a policyholder, you need not worry about managing the nitty-gritties of these investments. Considering these individuals are specialists in the management of funds, it becomes a hassle-free experience to invest and also switch funds in case it is required. 

How to invest in equity through ULIPs?

Buying ULIP is no longer restricted through an insurance agent or via a visit to the insurance company’s office. Now you can purchase ULIPs online too. Here’s how you can do it – 

1. Visit your preferred insurance company’s website and head over to the ULIP section selecting the product that you are interested in. 
2. Read the policy features, its terms, and familiarise yourself with the policy document that is available online. 
3. Once you have shortlisted the ULIP you would like to invest in, you need to provide a few personal details, like your name, age, gender, contact details, nominee, etc. 
4. After inputting personal details, you need to select the plan and provide details of the amount of premium, frequency of payment, and policy tenure among others. 
5. Here, you would also be required to select the type of fund where investment is to be made. Since you are looking to make investments in stocks via ULIPs, you can select equity funds.
6. Some ULIPs also allow for manually selecting and customising the fund allocation among multiple funds. This way, you can hedge your risk among the different funds. 
7. Based on your selection of policy tenure, amount, and coverage, you will be provided with a premium which you can choose to either pay in one go or at regular intervals. 
8. The final step is to make the payment for your ULIP. 

While the above process is only illustrative, it may differ across insurance companies. Alternatively, you can also meet an insurance agent or visit the insurance company’s branch office to buy a ULIP.