ULIPs are often presented as long-term products. Most people associate them with investment horizons of 10 to 15 years. But what if you cannot commit to that much time? Can a ULIP still help you build wealth if you exit earlier?
The short answer is yes, it can, but there are important conditions. You need to be clear about your goals, your timeline and how you intend to manage your investments during that period.
Why the Early Years Are Slower to Grow
A ULIP is different from a mutual fund or fixed deposit. It offers both life cover and investment, which means part of your premium goes into insurance costs. The remaining portion is invested in funds that can include equity, debt or a mix of both. In the first few years, charges such as premium allocation, administration and mortality fees tend to be higher. These costs can reduce your fund value during the early phase.
If you exit after six or seven years, the impact of these charges may still show. This is why many people believe that a ULIP only makes sense beyond 10 years. However, newer plans with capped charges and low-cost structures have started to change that.
Returns Are Possible Before 10 Years with the Right Plan
You can still create meaningful value if you stay invested for around seven to nine years. It depends on how you choose your funds and how you manage your allocations. Starting with a higher equity mix helps if your goal is more than five years away. But it is important to switch to balanced or debt options once you get closer to the point of withdrawal.
The ability to switch funds within a ULIP without tax impact gives you an advantage. It lets you move to safer options without triggering a tax event or exit charge. If used wisely, this feature helps protect whatever gains you have built.
Use the Product for Specific Medium-Term Goals
Not everyone invests just for returns. Many families use ULIPs to plan for events such as a child’s school admission, medical care for elderly parents or as a backup plan if regular income gets disrupted. These are real, near-term needs that often come up before the 10-year mark.
A ULIP works well for these goals, especially if you know your time frame is around six to eight years. You also get the benefit of life cover during that period. This adds a layer of security that pure investments do not provide.
Tax Advantage Adds to the Value
Maturity proceeds from a unit linked insurance plan are exempt under Section 10(10D), as long as the annual premium is within the ₹2.5 lakh limit. If you stay invested for at least five years and your premium stays under this cap, you can withdraw without paying tax on the returns. For someone with a medium-term goal, this tax benefit improves the net outcome. Most debt mutual funds, in contrast, attract capital gains tax after three years.
How to Plan if You Expect an Early Exit
If you already know that you might not hold the plan for a full 10 years, you need to be more strategic. Start with a ULIP that has minimal or zero premium allocation charges. Insurers now offer products where charges drop sharply after the first year. Look for those options.
It is also helpful to use a ULIP calculator to estimate your returns based on different tenures. You can try out scenarios for five, seven or nine years and see how the fund value grows. This gives you a better idea of what to expect before you withdraw.
It is also a good idea to review your fund performance every year. You can switch to safer funds gradually if the markets have already delivered decent growth. This way, you lock in gains rather than taking last-minute risks.
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ULIP vs Other Products When the Horizon Is Short
For those who already have life insurance and are only looking to invest for five to seven years, mutual funds or targeted savings plans might appear more flexible. However, they do not offer a combined life cover or the fund switch feature. If your goal involves dependents or family responsibilities, a ULIP still holds its ground.
It may not give aggressive returns in the short term, but it offers controlled, disciplined growth. If managed well, the combination of tax savings, fund options and life protection can result in a competitive outcome even before the 10-year mark.
Final Thoughts
ULIPs are not the fastest wealth-building tools in the short term, but they are not unsuitable either. With careful fund choices, charge control and timely switches, you can build a useful corpus by year seven or eight. If your goal involves securing your family or planning for a known expense in that time frame, a ULIP can help you reach it without compromising on protection or tax benefits. The key is not just to choose the right product, but to match it with your life stage, investment goal and expected time of exit.
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