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Learn How Your ULIP Policy Works In Real Time

Unit linked insurance plan (ULIP), is a plan which gives you two facilities in one single policy i.e insurance plus investment. Although this type of investment or insurance is not suggested by any of the experts. But many of us get into this type of investment/ insurance schemes to save tax, as it offers tax benefits under section 80C. So it is always better to understand the policy in which we have invested our hard earned money. Lets have a look how your insurance premium get allocated in ULIP and what you get in case of insurance claim or otherwise.

ULIP Life Cycle

  • If suppose you as an investor/ insured paid Rs 50,000 as premium for your ULIP policy.
  • Your insurance company will take the money and divide that premium amount of Rs 50,000 into two parts one for the investment and the rest for the insurance cover.
For Investment Rs 45,000
For Insurance Rs 5,000

Note : Companies offering ULIP charge various amount out of the premium paid for varied ULIP plans. These charges are usually quite high and the charges are premium allocation charges, administration charges, fund management charges etc. Companies first deduct these charges out of the premium paid and then invest the amount.

ALSO READ : All About ULIP Policy? Riders, Top-ups, Types of ULIP’s, Charges etc..

  • As shown above, suppose your insurance company have divided the premium amount paid by you and gave Rs 45,000 to the investment team and the rest Rs 5000 to the insurance team.
  • Investment team of that insurance company will take that amount and invest the same in debt, equity etc.. on your behalf to generate profit.
  • Insurance team of that insurance company will provide death benefit to the insured family till the policy last.

ulip life cycle

ALSO READ : Difference Between ULIP And Mutual Funds

Once you pay the premium amount and your amount get invested after deduction of various charges then what are the various possible cases that can happen:-

Withdrawal of money before maturity :- In most of the ULIP plans, company lock your funds for the first 5 years (before 28 June 2010 – 3 years) which restricts any withdrawal of funds from the policy. In simple words, fund withdrawal request raised before completion of first 5 years will not be entertained and non payment of premium can make your policy lapse.

Once the locking period gets over you can withdraw your funds but if your withdrawal is before maturity then you will have to pay the surrender charges. Here is a table explaining how much surrender charges you may have to pay in case of discontinuing policy before locking period gets over:-


AP – Annualized Premium

FV – Fund Value on the date of discontinuation

Policy Discontinued Discontinuation Charges
(Upto Rs 25000 Premium Amount)
Discontinuation Charges
(Above Rs 25000 Premium Amount)
1st Year 20% of AP/ FV OR Rs 3000 whichever is less 6% of AP/ FV OR Rs 6000 whichever is less
2nd Year 15% of AP/ FV OR Rs 2000 whichever is less 4% of AP/ FV OR Rs 5000 whichever is less
3rd Year 10% of AP/ FV OR Rs 1500 whichever is less 3% of AP/ FV OR Rs 4000 whichever is less
4th Year 5% of AP/ FV OR Rs 1000 whichever is less 2% of AP/ FV OR Rs 2000 whichever is less
5th Year

Withdrawal of money before maturity = Fund Value  On The Date Of Discontinuation (–) Surrender Charges

Withdrawal of money on maturity :- Withdrawal of fund on maturity will offer you the current value of the total amount invested.

Withdrawal of money on maturity= Fund Value On The Date Of Maturity + Bonus (In Participating Ulip Plan)

On Death of Policy Holder Before Maturity :- In case of death of the insured, there can be two possible death benefits which can be offered to the beneficiary (depending on the terms of the policy):-

On Death of Policy Holder Before Maturity = Fund Value OR Sum Assured – whichever is higher.


On Death of Policy Holder Before Maturity = Both (Fund Value + Sum Assured)

NOTE :- Nominee of the insured will not be taxed on the amount of death benefit received from the insurance company.

ALSO READ : Whether Go With ULIP Or Endowment Plan

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