Revised ULIP Terms & Trends in 2025: What You Need to Know

Unit Linked Insurance Plans (ULIPs) have long been popular in India because they combine life insurance with investment opportunities. Since the regulatory revision on September 1, 2010, ULIPs have offered a set of standard features. However, in the past decade, market dynamics, regulatory updates, and changing investor expectations have led to further changes.

ULIP Revised Terms: The Basics

As of 2010, the following key terms were set for ULIPs. Let’s briefly recap those features and discuss how recent updates have refined them:

• Minimum Policy Term:
  ULIP policies are required to have a minimum term of 10 years. This long-term commitment encourages disciplined investing and helps investors ride out market volatility.
• Top-Up Premium Lock-In Period:
  A lock-in period of 3 years is mandatory for any top-up premium. Moreover, investors cannot make a top-up premium during the last 3 years before the policy matures. This rule ensures that the investment component has sufficient time to generate returns.
• Mandatory Insurance Cover:
  Every ULIP must include compulsory life insurance coverage. Even if you are buying a ULIP purely for investment, the policy will always provide a basic risk cover. Pension ULIPs, however, have an added restriction: no withdrawals are allowed before maturity.
• No Assignments or Loans:
  ULIP plans do not allow policy assignments or loans against the policy. This restriction is intended to maintain the focus on long-term investment and risk management.
• Top-Up Premium as Single Premium:
  When you make a top-up, it is treated as a separate single premium. The top-up must also include a risk cover component, ensuring the policy’s overall life cover remains intact.
• Surrender Charges:
  If you choose to surrender your ULIP before completing 6 years, a penalty is applied. This charge discourages premature exits from the policy and helps maintain the fund’s stability.

Surrender Penalty Charges:

What’s New in ULIP Trends and Regulatory Updates in 2025?

Increasing Investor Awareness and Market Growth

Recent data shows that insurance penetration in India is steadily increasing. For instance, according to industry reports, the new business premium from ULIPs has grown by over 15% year-on-year, with ULIPs now accounting for nearly 37% of the individual product mix for major insurers like HDFC Life and SBI Life. This growth is driven by rising financial awareness and the positive stock market, which makes ULIPs an attractive investment option.

Enhanced Transparency and Standardisation

Regulatory bodies such as the Insurance Regulatory and Development Authority of India (IRDAI) have taken steps to improve transparency in ULIP policies:

• Standardisation of Charges:
  ULIP charges, including premium allocation, fund management, and policy administration fees, are now more standardized. Insurers are required to disclose all charges upfront, making it easier for investors to compare products.
• Return of Mortality Charges (ROMC):
  Some insurers now offer ROMC features, where the mortality charge is returned to the investor at maturity. This enhancement reduces the overall cost of the policy and improves the effective returns.

Taxation and Capital Gains Treatment

One significant update relates to tax treatment on ULIP returns. With amendments implemented since February 2021:

• If the annual premium exceeds ?2.5 lakh, the gains from ULIPs are now taxed as capital gains. Short-term gains (if held for less than 12 months) attract a tax rate of 15%, while long-term gains are taxed at 10% after an exemption on gains up to ?1 lakh.
• However, if you invest within the prescribed limits, ULIP maturity proceeds remain tax-exempt under Section 10(10D) of the Income Tax Act, 1961.

Impact of Economic Trends

According to recent quarterly reports, major life insurers like HDFC Life and SBI Life have reported increased profitability driven by the surge in ULIP sales. For example:

• HDFC Life reported a 14% increase in quarterly profits with ULIPs forming 37% of its annualized premium equivalent (APE) product mix.
• SBI Life’s ULIP segment grew to represent 67% of its product mix, despite slightly lower profit margins on these products. This indicates a strong investor preference for market-linked products that offer long-term benefits.

Benefits of Investing in ULIPs Today

ULIPs remain an attractive choice for many reasons:

1. Dual Benefits:
   You receive both life cover and investment returns, which provides financial security for your family while also helping you grow wealth.
2. Flexibility:
   With multiple fund options (equity, debt, and balanced funds), you can tailor your investments according to your risk appetite. Moreover, the ability to switch funds allows you to adapt to changing market conditions.
3. Tax Benefits:
   ULIP premiums are eligible for tax deductions under Section 80C, and maturity proceeds are tax-exempt under Section 10(10D), provided you adhere to the premium limits.
4. Long-Term Growth:
   The minimum 10-year term, combined with a 5-year lock-in period, encourages a long-term perspective that can lead to better returns as your investments compound over time.
5. Improved Returns with ROMC:
   The return of mortality charges feature enhances net returns, making ULIPs more cost-effective compared to earlier versions.
6. Standardization and Transparency:
   With recent regulatory measures, investors have access to clear and comparable information about ULIP charges and performance, enabling informed decision-making.

Conclusion

In 2025, ULIPs continue to evolve as a robust investment-cum-insurance product, adapting to the needs of modern investors. With enhanced transparency, standardized charges, and favorable tax treatments, ULIPs offer an attractive option for both young professionals and seasoned investors looking for long-term growth coupled with life cover. Always consult a financial advisor to tailor your ULIP investment to your financial goals and risk tolerance.

By staying informed about regulatory updates and market trends, you can make the most of your ULIP investment to secure a financially sound future for yourself and your family.