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How does ULIP Work

By Finserv MARKETS - Mar 28,2020
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How ULIP Works

In today’s day and age, one of the most salient financial advice anyone can receive is to make sure that they have life insurance as a part of their investment portfolio. After all, it is paramount that in the event of their unfortunate demise, their family’s financial needs will always be fulfilled. Having said that, prospective insurance seekers today have a wide array of life insurance products and schemes to choose from. While some settle with a traditional, straightforward life insurance policy that provides just coverage, others seek for something more.

For the latter type of insurance seekers looking for a proper return on their investments, Unit Linked Insurance Plans, or ULIPs are a true insurance boon. Considering their popularity, if you too have been thinking about signing up for a ULIP plan, it is essential that you first understand exactly how ULIP plans work for you.

Here is a closer look at how ULIP works, its features as well as its functions.

What is a ULIP?

Unit Linked Insurance Plans or ULIPs are essentially a type of life insurance product whereby the policyholder gets to enjoy the benefits of investments as well. Like all life insurance products, the ULIP policyholder pays monthly or annual premiums. However, with ULIPs, under a single integrated plan, this amount is partly set aside for insurance and partly in a form of investment fund. With a ULIP plan, the type of investment funds as well as the features of insurance coverage can be chosen by the policyholder and therefore, it offers immense flexibility to the insured.

How ULIP Works

Source: IndiaMart

Types of ULIP Funds

Like mutual funds, ULIP providers pool money from several policyholders and invest the amount in the respective funds chosen by them. These investment funds differ on the type and distribution of instruments in which the money is invested. Based on the investment preference and risk appetite of the insured, the policyholder can choose from primarily three types of ULIP funds:

  1. Equity Funds

How ULIP plans work with equity funds is that part of the premiums are invested primarily in the equity market ie. company stocks and equities. The equity market is known for its fluctuations and volatility and hence, these types of funds are ideal for slightly high-risk investors. As a result of being linked with the market, these funds come with their own share of high risk, but are accompanied with prospects for high returns as well.

  1. Debt Funds

Another way how ULIP works is by investing your premiums in more stable avenues such as fixed income instruments and the bond market. Without the volatility of the market, these types of funds are ideal for investors with a more conservative approach. Both the risk and rewards for these types of funds therefore range from medium to low.

  1. Balanced Funds

An ideal balance between the investment strategies of the funds mentioned above can be found in ULIP plans with balanced funds. With these types of funds, ULIP premiums are invested in a combination of both equity as well as debt funds. Therefore, the policyholder is able to make the most of market opportunities as well as enjoy the stability of debt instruments.

Features of Life Coverage with ULIPs

As mentioned above, while a variety of insurance products on the market offer coverage, ULIP plans offer certain features that are uniquely beneficial.

  • Dual Advantage:

The popularity of ULIPs is greatly due to its ability to offer dual benefits to policyholders, namely insurance as well as investment. This is a prime feature that sets it far apart from other types of life insurance.

  • Partial Withdrawal:

One major advantage that ULIPs have over other types of life insurance offerings is that they offer policyholders the facility of partial withdrawal. While ULIPs are ideal for medium to long term investments, they nevertheless offer the opportunity for you to withdraw your accumulated fund value after a period of 5 years.

  • Switching Options:

Your life insurance policy can extend over a long period of time, during which your investment strategy too might undergo some major changes. To help accommodate for this, ULIPs offers policyholders the option to switch between the types of funds they wish to invest in. Based on your life stage and changing market outlook, you can change up the investment in your ULIP plan.


All in all, how ULIP works is by setting aside your premiums for both life coverage as well as towards the investment funds of your choice. With their dual benefits, ULIP plans ensure that not only do you provide ample coverage for your family’s needs, but also invest in wealth creation for the future. However, how well ULIP plans work for you depend on your choice of a trusted, reliable insurer and the right ULIP plan. To that end, you can invest in the variety of ULIP plans available on Finserv MARKETS.

With the ULIPs on Finserv MARKETS, you can effectively build your wealth over time, and easily switch your choice of funds based on market movements. Moreover, the ULIP plans on Finserv MARKETS also offer ample insurance coverage for both yourself as well as your family. Most importantly, they allow you to choose from their array of specialised plans to find the ULIP that meets your needs best -be it a retirement plan, child plan or investment plan.

Also read in detail about the ULIP tax benefits you can avail with a Bajaj Allianz ULIP plan available on Finserv MARKETS.

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.


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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522