At 28, I’ve been contributing Rs 15,000/month to four LIC ULIPs for the past five years and Rs 65,000/year to a term-linked ULIP (TATA AIA Smart Sampoorna Raksha) for two years.
Alongside, I’m servicing a 7-year car loan of Rs 6 lakh at 7.5% p.a. and managing an over-diversified mutual fund portfolio spread across multiple agents, which I’m now consolidating under a single advisor. As I regain control of my financial journey, I seek clarity on whether to continue ULIP premiums, the tax implications of discontinuing them, and the optimal strategy for balancing insurance, debt repayment, and investments to drive long-term wealth creation.
Expert Insights by Anooj Mehta, Vice President, Partner Success at 1 Finance
ULIPs should primarily be treated as insurance products, not investment tools. Since the 5-year lock-in for your LIC ULIPs has ended, the prudent choice is to stop further premiums and surrender these policies. The proceeds will be tax-free under Section 10(10D) of the Income Tax Act. These funds can either reduce your car loan burden or, if cash flow allows, be redirected into equity mutual funds to generate superior long-term returns.
For the TATA AIA Smart Sampoorna Raksha ULIP, having completed only two years, it’s advisable to continue until the 5-year lock-in concludes. This avoids discontinuity charges and preserves tax efficiency. Should you stop premiums now, the value of contributions already made will earn only modest returns, similar to a savings account, until maturity.
Your current mutual fund portfolio is over-diversified, which dilutes returns and complicates oversight. Consolidating under a single, fee-based advisor is a critical step. Streamline to no more than 3-4 direct mutual fund schemes for cost efficiency and sharper performance tracking. Before ramping up equity exposure, ensure you have a robust emergency corpus in place.
Replacing ULIPs with a plain term insurance plan is strongly recommended, as term cover offers significantly higher protection at far lower cost, freeing capital for disciplined investments. A qualified advisor can help prioritize emergency reserves, adequate insurance, and asset allocation, setting you on course for a more efficient, long-term wealth strategy.
ULIP Investment
A Unit Linked Insurance Plan (ULIP) combines life insurance with market-linked investments. Part of your premium funds insurance coverage, while the balance is invested in equity, debt, or balanced funds. Professional fund managers handle these investments, sparing you the hassle of constant market tracking. ULIPs also allow switching between debt and equity funds, offering flexibility based on your risk profile.
While ULIPs have a minimum 5-year lock-in (extended from 3 years by IRDAI in 2010), the real benefits accrue over a 10-15 year horizon, when compounding and insurance cover work in tandem.
ULIPs offer dual advantages: financial protection for dependents and tax benefits. Premiums qualify under Section 80C, while maturity proceeds are tax-exempt under Section 10(10D). These make them suitable for long-term goals such as retirement, child’s education, or systematic wealth creation.
ULIPs are available across equity, debt, and balanced categories, with death benefits under both Type I and Type II plans, ensuring security for nominees while steadily building wealth.
Things to keep in mind before buying ULIPs
Define financial goals – retirement, child’s education, or wealth creation.
Compare ULIP plans – charges, fund options, performance, and premium flexibility.
Assess risk appetite – equity funds are high-risk/high-return, debt funds are safer but yield less.
Understand lock-in – minimum 5 years, but optimal benefits come over 10-15 years.
Switching flexibility – limited free switches available between debt and equity.
Balance cover & investment – ensure the insurance component meets family needs.
Beware of early surrender – exiting early erodes returns and reduces overall benefits.