Best ULIP Plans In India For 2023

For our Forbes Advisor India ratings, we analyzed 80 ULIP plans from the top life insurance companies of India on the basis of key parameters such as:

Fund Performance: This is the most crucial factor which has been taken into consideration while selecting the best ULIP plans. The companies that provide maximum benefits and returns have been ranked higher. We have also stated the NAV of the funds belonging to each ULIP product which determines its performance . The data that we have taken is as of July 31, 2022. It is to be noted that past performance is not indicative of future performance of the fund.

Policy Charges: The policy charges should be as low as possible and the company should be transparent enough to disclose all the other charges as well.
Number of Funds: The fund mix should be balanced between equity, debt and other hybrid funds, so as to provide the maximum return possible.

Premium Amount: This is also one of the most important factors which helps the policyholder to select the ULIP plans as per their preference.

Availability of Riders: Other than life cover and wealth creation, many ULIP plans give the optional riders to enhance the scope of coverage such as waiver premium rider or accidental and disability rider.

Other Benefits: Benefits such as wealth boosters and guaranteed benefits, which provides the additional and extra amount to the fund’s value.

A Unit-Linked Insurance Plan which is popularly known as a ULIP, is a long-term investment instrument which provides dual advantage of insurance as well as wealth creation. ULIP offers the dual benefits of insurance and investment through the same plan, for which the policyholder pays for the premium, the one part of which goes towards providing life cover and the other part of the premium gets invested in either the equity funds or the debt market.

Flexibility Options: The ULIP plan provides the maximum amount of flexibility to their policyholders in choosing the premium payment term, policy tenure, funds of their choice, change of life cover, and various optional riders. Apart from this, the policyholder also has the option to increase the investment amount through top-up options according to their risk appetite.

Transparent Fees Structure: Before putting the hard-earned money into any financial instrument, we expect the highest degree of transparency with no hidden charges. The ULIP plans have an organized fee structure, which is very much disclosed in their policy wording document. Similarly, the company also provides the account statement on an annual and quarterly basis to their policyholders, with the daily net asset value (NAV) reporting and the fund’s performance, which helps the policyholder to keep a track on their investments.

Tax Benefit: ULIPs are a great financial tax-saving instrument, which tends to provide certain benefits at every stage of the policy. The policyholder receives tax benefits on premium payments under the Section 80C and 80D. The returns are tax-free and as well as the maturity benefits are tax-free under the Section 10 and 10D of Income Tax Act, 1961. However, if one has paid an insurance premium of more than INR 2.5 lakh for previous years of policy term, then they will have to bear capital gain tax on the amount of withdrawal.

High Degree of Liquidity: This is one of the best features of any ULIP plan, that one can withdraw their investment partially after the completion of five years of lock-in-period. The partial withdrawals feature allows the policyholder to withdraw a certain percentage of invested amount from their policy as and when they need.

Dual Benefit of Insurance and Investment: This is indeed the USP with which the ULIPs have been designed to offer the dual benefit of insurance and investment in one single plan. With ULIPs, the policyholder gets an exposure of equity and money market-linked growth without actually participating directly in the stock market. And, this comes along with the added benefit of life-cover, that provides death and maturity benefits and thus takes care of your insurance needs.

Assess Your Financial Goals: Select the ULIP plans depending upon your goal whether it is short-term or long-term. As ULIP is a balanced mix of equity and debt, where equity funds have high growth potential and debt funds are relatively stable instruments which aim to preserve your wealth and provide you interest income. You can decide which ULIP plan is best for you, as per your financial goals.

Choose Right Amount Of Life Cover: While buying a ULIP, always opt for a right amount of life cover as these plans are meant for securing your financial goals such as child’s education, their marriage or for retirement planning. Generally, life cover should be ten times of your annual premium amount. Life cover is a payout which your nominee will receive, if something unfortunate happens to you. Always select the ULIP, which covers all your insurance needs as well as give high returns over a longer period of time.

Know Your ULIP Charges: ULIPs are tagged along with multiple charges and fees such as premium allocation charges, policy administration, fund management charges and so on. It is advisable to select your ULIP plan after having full information on the number of charges and how they will be charged.

Choose ULIP As Per Its Policy Term: There are some ULIPs in the market, which offer you the insurance benefit or payouts after a very long period and few ULIPs provide you the benefits after five years completion of lock-in-period . So, choose your plan accordingly as per your goals. A long-term plan will give you more return than short-term plans, but the payout will be given after a long wait.

Compare The Best Selected ULIPs: To select the best one, one needs to compare the ULIPs on the basis of various factors such as funds’ past performance, fund mix, charges, cost structure, premium payment, returns and so on. One can easily compare these plans via various online portals.

Here’s a quick note of the most common charges that one might have to pay for having a ULIP plan in their portfolio:

Premium Allocation Charges: The premium allocation charges are generally levied only for the first few years of ULIP plan. It refers to that percentage of premium which gets deducted before allocating the units in the policy. The insurance company levies such charges to cover initial cost incurred towards issuing a policy such as commission charges, distributor fee and the underwriting cost.

Policy Administration Charge: These charges are deducted for covering the administrative costs of the company which helps in the maintenance of the ULIP policy. There charges are generally fixed during the first few years and then it increases every year by a certain percentage.

Mortality Charges: These charges are levied by the insurance company for providing the insurance cover to the policyholder. Mortality charges are levied once a month and gets deducted from your chosen funds. The percentage of charge totally depends upon the sum assured, age and health conditions of the policyholder.

Fund Management Charges: This charge is levied for managing all the funds chosen by the policyholder. FMC is charged as a percentage of the assets value. As per the insurance regulator of India, IRDAI, the companies cannot charge more than 1.35% as FMC per annum.

Surrender Charges/Discontinuance Charges: These charges are levied if the policyholder decides to discontinue the policy or surrender the fund units fully or partially before the policy expires. This charge is calculated on the basis of percentage of fund or from the annualized premium amount.

Fund Switching Charges: One of the main benefits of a ULIP plan is the flexibility to switch the funds at any given point of time. However, certain ULIP provider companies do not charge anything for fund switches and thus allow free switches, but certain companies charge nominal fees which range from INR 100 to INR 500 for switching funds.

Important Tip: Please note that not all insurance companies impose the same ULIP charges. All these charges and fees vary from one company to another. Therefore, while choosing a ULIP plan, one should always take these various charges into consideration and then take a wise call.

• The insurance company will invest one part of your premium amount in funds such as equity, debt for investment purposes.
• The remaining part of premium is invested in insurance which aims to provide you financial security in terms of death benefit, maturity pay-outs or regular income.
• Investment component of ULIP is managed by the dedicated team of specialized fund managers.
• Keep reviewing the performance of your ULIP plan, and if you feel that your funds are not performing much, you always have a right to switch your investment funds.

Waiver of Premium Benefit Rider: Waiver of premium rider allows the insurance company to waive all your future premium, if you have loss of income due to an accidental disability.

Accidental Death Rider: The nominee receives an additional benefit which is over and above the death benefit payout, in case the policyholder dies during the ULIP term.

Accidental Permanent/Partial Disability Rider: This rider allows the insurance company to pay a lump sum amount, in case the life assured suffers from any of the accidental disability.

Critical Illness Benefit Rider: If the policyholder is diagnosed with any of the covered critical illnesses, then via this rider they are entitled to receive the lump sum payout if any such illness happens during the policy period.

Income Benefit Rider: If the policyholder opts for this rider, they are entitled to receive a certain percentage of rider sum assured amount monthly for a minimum period of ten years. The policyholder can claim this rider, in case of accidental disability, permanent total disability, or first diagnosis of any of the covered critical illnesses.

Equity Funds: These ULIP funds are associated with high-risk and high returns. Under this kind of ULIP, the subscriber invests in high-risk equity funds and different stocks of companies which have the potential of bringing the highest returns.

Debt and Income Funds: These ULIPs are good with those subscribers who are more comfortable investing in less risky funds and decent returns over the period of time. In this kind of ULIP plans the funds get invested in debentures, corporate bonds, government bonds and fixed income funds.

Liquid Funds: This ULIP gives the opportunity to the subscribers to invest in very low risk market instruments such as market money funds, cash, bank deposits, and others. The lower risk profile also means lower returns for the investor. Also, these kinds of funds can be liquidated in cash in a very short-term period.

Balanced Funds: In this kind of ULIP, the funds are invested in the balanced mix of equity, debt and liquid funds. In balanced funds investment, the risk is spread out between high-risk and low-risk investment funds which tend to offer stable return with lesser risk of volatility.

To make the most from any financial instrument, it is very important that apart from returns and insurance payouts, there should be considerable tax saving or benefits also to make it a successful investment. ULIPs used to provide this benefit extensively, but post amendment of The Finance Act, 2021, ULIP plans have no longer tax exemptions, in the following case of:

• If the ULIP policies are issued on or post February 1, 2021, then there will be no tax liabilities on your ULIP plans. As the amendments are applicable prospectively, which means for the policies after February 1, 2022.
• In case you have paid the aggregate annual premium INR 2.5 lakh or more than this limit, for any of the previous years, then you have to bear the capital gains tax on any income earned on it. Long-term capital gains (LTCG) tax of 10% will be applicable on all equity-oriented investments, if one holds more than a year or more. Short-term capital gains (STCG) tax of 15% will be applicable on all equity-oriented investments, if one holds for one year or less.
• However, there is no tax in the case of the death of a policyholder. And, if your premium is less than the cap of INR 2.5 lakh, then your premium, maturity and death benefits would be completely tax free. ULIPs also continue to enjoy tax exemptions on premium paid up to INR 1.5 lakh.