ULIP (unit linked insurance plan)

What is a ULIP?

A unit linked insurance plan, or ULIP, is a life insurance policy whose savings value depends on the performance of investment funds. Each premium, after the insurer deducts its charges, buys units in one or more segregated funds that the policyholder picks, such as equity, debt or balanced funds. The value of the policy at any time is the number of units held multiplied by each fund's net asset value (NAV). The policy also carries life cover, so the nominee receives a death benefit if the policyholder dies during the term.

The investment risk sits with the policyholder, not the insurer. Unless the product carries an explicit guarantee, the maturity value can be lower than the premiums paid.

How ULIPs work in India

ULIPs are "linked insurance products" under the IRDAI (Insurance Products) Regulations, 2024, with further detail in the Master Circular on Life Insurance Products of June 2024. All linked products are non-participating. Where every fund tracks a public index, the product is classed as an index linked product rather than a ULIP. The core rules as of October 2026:

• Lock-in. Money cannot be paid out for the first five policy years except on death or another covered event.
• Term and paying term. The minimum policy term is five years, and except for single premium plans, the premium paying term must also be at least five years.
• Death benefit. The policy pays either the sum assured plus the fund value, or the higher of the sum assured and the fund value. The sum assured must be at least 7 times the annualised premium (5 times from age 50) for regular premium plans, or 1.25 times the single premium (1.10 times from age 50).
• Maturity. The maturity benefit is at least the fund value on the maturity date, and the insurer may offer a settlement option that spreads the payout over up to five years.
• Partial withdrawals. Allowed only after the lock-in, not before a child life assured turns 18, and never in group ULIPs.
• Top-ups. Extra premiums buy extra cover, cannot be withdrawn for five years, and are not allowed in the last five years of the term (except in pension ULIPs).
• No policy loans. The mandatory loan facility in the 2024 master circular applies to non-linked savings products only.

Charge caps

Mortality charges must reflect only the pure cost of cover, and the charge table is guaranteed for the contract. See ULIP charges and mortality charges.

Stopping premiums or surrendering

If a regular premium ULIP is discontinued during the lock-in, the fund value, less a capped discontinuance charge, moves to a discontinued policy fund that earns at least 4% a year and bears only a fund management charge. Cover stops. The policyholder has three years from the first unpaid premium to revive the policy, and the money is paid out at the end of the lock-in or revival period. After the lock-in, a policy with unpaid premiums becomes reduced paid-up, and a surrender pays at least the fund value.

For annual premium policies, discontinuance charges cannot exceed these limits:

Tax

ULIP maturity proceeds are exempt only within the conditions of the former section 10(10D) of the Income-tax Act, 1961, carried into the Income-tax Act, 2025. For ULIPs issued on or after 1 February 2021, the exemption is lost if the annual premium exceeds ₹2.5 lakh. Amendments made through the 2025 Budget confirmed that gains on such non-exempt ULIPs are taxed as capital gains. Death benefits remain exempt. See taxation of ULIPs.

What ULIPs mean for distribution

ULIPs are among the most cyclical products in Indian life insurance: sales tend to rise with equity markets and fall when markets turn.

• Selling the right holding period. A ULIP makes sense for a customer who can keep paying for well beyond the five-year lock-in. Early-year charges are front-loaded within the regulatory spread rules, so a policy stopped in year two or three usually returns less than was paid.
• No guaranteed return claims. Quoting a past fund return as a promise, or calling a ULIP "like a fixed deposit with insurance", is classic mis-selling. The illustration at 4% and 8% gross returns, which must show a fund value at maturity of at least 90% of premiums at the 4% rate for individual ULIPs, is the reference the seller should use.
• Fund choice and switching. The adviser's ongoing value lies in fund selection, rebalancing through switches and moving to safer funds as the goal approaches. Partners who only sell and never review leave customers in the wrong fund mix.
• Adequate cover. The 7 times minimum is a floor. For a customer who needs protection, a ULIP with minimum cover plus a separate term insurance plan is often clearer than a high-cover ULIP whose mortality charges eat into the fund.
• Ticket size and tax. Above ₹2.5 lakh of annual premium, maturity gains are taxable, so for large-ticket customers advisers should compare after-tax outcomes with other investments rather than quote pre-tax fund returns.
• Persistency and commission. Commission in a ULIP comes out of the charges. With the 2023 commission rules giving insurers board-approved freedom within the expenses of management limits, and IRDAI's September 2026 consultation paper proposing product-level caps again, distribution leaders should model how any cap would change partner payouts. As of October 2026 the caps are proposals.