How To Choose The Best ULIP Plans In India

IndiaFirst Life
• 08 May, 2025

When it comes to combining investment and insurance under one umbrella, Unit-linked Insurance Plans (ULIPs) have emerged as a smart financial tool. But, how to choose the best ULIP plans in India? With multiple options and varying features, making the right choice requires clarity about goals, risk appetite, and returns. Here’s a comprehensive guide to help you pick wisely.

Understanding ULIPs: A Dual Benefit Financial Instrument

A Unit-linked Insurance Plan (ULIP) is a hybrid product that offers both life insurance coverage and investment. Your premium gets you life insurance policy benefits, ensuring financial protection for your family, and investment in equity, debt, or a mix of funds based on your risk appetite.

Here is a list of things you should consider while choosing a ULIP.

Define Your Financial Goals

Before investing, clearly define your goals. Are you investing for retirement planning, your child's education, or wealth creation? Your objectives will determine the type of ULIP you should choose.

If the security offered by a long-term investment plan is your priority, opt for a ULIP with a balanced fund structure.
If you have a higher risk appetite, equity-oriented ULIPs offer higher growth potential.
If protecting your family is the key concern, choose ULIPs with strong life insurance benefits.

For individuals considering overseas investments, specialised options like ULIP for NRIs allow non-resident Indians to invest in Indian markets while securing life cover.

Type of ULIP Suitable For You

The type of ULIP that is right for you depends on the purpose you are buying it for. Here a few functions you can fulfil using ULIPs.

Wealth Creation:
Such plans are ideal for investors seeking long-term capital appreciation.
Retirement:
ULIPs bought for retirement planning make sure that you have a consistent income flow after retirement.
Child Education:
ULIPs focused on child education help secure a child’s future, ensuring financial support in case of the policyholder's demise.

Understanding these different purposes will help you determine how to choose the best ULIP plans for your financial needs.

Evaluating Fund Options & Past Performance

The best ULIP plans offer diverse fund choices, allowing investors to choose between equity, debt, or balanced funds.

Equity Funds:
High-risk, high-reward investments ideal for aggressive investors.
Debt Funds:
Lower risk, providing stability and steady returns.
Balanced Funds:
A mix of both, suitable for moderate-risk investors.

When evaluating ULIP returns in 5 years, always check historical fund performance. Additionally, using an online ULIP return calculator can help estimate potential returns based on premium, term, and fund selection.

Flexibility in Switching Between Funds

One of the most attractive features of ULIPs is that the policyholder can make fund switches when they deem necessary. This allows investors to shift their investments based on market trends and risk appetite. Look for plans that offer multiple free switches per year, as this flexibility enhances returns without additional costs.

Another crucial aspect is understanding capital gain tax in ULIP. Under current Indian tax laws, ULIP maturity benefits remain tax-free under section 80C, provided the annual premium does not exceed ₹2.5 lakh. This mechanism ensures that ULIPs can be an investment option that is also tax-efficient.**

Comparing Charges & Cost Structure

ULIPs come with various charges, including:

Premium Allocation Charges:
A portion of the premium deducted before investment.
Fund Management Charges:
Fees for managing investments.
Mortality Charges:
The cost of providing life insurance policy coverage.
Surrender Charges:
Applied if the plan is exited before maturity.

Low-cost ULIPs provide better long-term returns. When researching how to choose the best ULIP plans, always compare cost structures across different insurers.

Tax Benefits on ULIPs**

One major advantage of ULIPs in India is tax savings. Premiums paid are eligible for deductions under Section 80C, up to ₹1.5 lakh per year. Additionally, maturity proceeds remain tax-free under Section 10(10D) if the premium is within the prescribed limit.

For individuals in higher tax brackets, investing in ULIPs not only helps in wealth creation but also reduces taxable income effectively.

How to Ensure You Select the Right ULIP?

To ensure you select the best ULIP for you, consider:

Step 1. Investment Horizon:

ULIPs work best as a long-term investment plan rather than short-term investments.

Step 2. Premium Payment Term:

Choose a plan that suits the stability of your income.

Step 3. Policy Tenure:

Most ULIPs come with a lock-in period of 5 years, making them suitable for goal-based investing.

Step 4. Customisation Options:

Some ULIPs offer riders like accidental death benefits or critical illness cover.

How ULIPs Compare to Other Investment Options

When comparing ULIPs with other investment products like term insurance, mutual funds, or fixed deposits, consider:

Mutual Funds:
Offer higher liquidity but lack life cover. ULIPs provide a combination of both.
Term Insurance:
Provides pure protection but no investment benefits. ULIPs blend insurance with market-linked returns.
Fixed Deposits:
Lower risk but taxable returns. ULIPs provide market-linked returns with tax benefits.

The best ULIP plans are those that align with your risk tolerance and financial goals while offering flexibility and cost-effectiveness.

The Role of ULIPs in Financial Planning

ULIPs play an important role in financial planning as they combine insurance protection with investment growth. Whether you’re saving for a major milestone or securing your family’s future, ULIPs offer structured wealth accumulation with tax benefits.

For high-net-worth individuals (HNIs), ULIPs act as an efficient wealth transfer tool, ensuring tax-free maturity proceeds for beneficiaries.

Using Online Tools to Choose the Right ULIP

Several online resources can help make an informed decision.

ULIP Return Calculator:
Helps estimate projected returns.
Comparison Websites:
Allow side-by-side comparison of ULIP features and charges.
Insurer Websites:
Provide policy documents and fund performance reports.

By leveraging these tools, you can confidently determine how to choose the best ULIP plans based on expected returns, risk profile, and long-term financial goals.

ULIPs are a great option for individuals looking to combine life insurance policy benefits with wealth creation. However, selecting the best ULIP plans requires careful evaluation of fund performance, cost structure, tax benefits, and flexibility in investment options. With a well-researched approach and proper use of tools like the ULIP return calculator, investors can maximise their returns while ensuring financial security for their families. Before finalising a ULIP, always read the policy documents carefully and consult a certified financial advisor to ensure the plan aligns with your long-term financial objectives.

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.