The biggest difference lies in the fact that mutual funds do not offer a life cover; only ULIPs do. This is the money the insurance company promises your family in case of an untimely death. Let’s understand this using an example. Mr A invests 50,000 in a ULIP, while Mr B buys mutual fund units with the same amount.

What type of insurance is ULIP?

ULIP full form is Unit Linked Insurance Plan which is a type of life insurance solution, offered by insurance companies. These plans provide the combined benefits of life cover protection and investment returns.

What combines both investment and insurance?

ULIPs are market-linked insurance products. Part of the premium is invested for wealth creation, while part of it is used to provide life insurance coverage. Let’s look at the key features of ULIPs.

Are ULIP policies bundled?

The bad news (for Ulip salesmen) is that buying a life cover of Rs 1 crore in the form of Ulips will require an annual premium of Rs 10 lakh. If you actually discuss all this with an insurance salesperson, they will tell you that Ulips also have investment bundled with insurance.

Why is ULIP not good?

The problem with the ULIP is you neither get decent returns nor do you get decent insurance coverage. An investor has the option of choosing where your premium is invested in an ULIP. Your premium can be invested in equity mutual funds, debt mutual funds or a combination of both.

How does ULIP plan work?

When you invest in a ULIP, a portion of your premium is allocated for the insurance cover while the rest is invested in equity/debt funds basis your choice of funds. You can choose from various plan variants which vary in fund allocation to equity and debt.

What’s the difference between an ULIP and a mutual fund?

Do not be confused with mutual funds and ULIPs. Because they do have a few similarities, however, they are different financial products. ULIP is a unique and strategic financial product, which is a combination of life insurance and investments. In ULIP, a part of the premium is deducted as mortality charges for providing life cover.

How does a life insurance plan work with an ULIP?

Life Cover : The life insured is covered against the risk of an untimely death. There’s an assured death benefit that is payable to the nominee in case of an untimely death of the life insured. If there’s a rider attached to the ULIP, the nominee receives the rider benefit also.

Are there any tax benefits for investment in ULIPs?

ULIP s are known for the tax benefits that they offer. You can claim a deduction of up to 1.5 lakhs on your investment in ULIPs under section 80C of the Indian Income tax Act. Where Mutual funds are concerned, you can avail deductions only for Equity Linked Savings Scheme (ELSS).

When to add top up to ULIP plan?

Add top-up to your base plan: ULIP gives an opportunity to increase your base plan coverage and investment fund. Top-up is a one-time lump sum investment you can pay over and above your premiums. You can avail this facility anytime during your policy term. It is an optional feature of ULIP.