Unveiling the Different Types of ULIPs and Their Benefits
Unit Linked Insurance Plan (ULIP) is a unique comprehensive life insurance product. It offers the policyholder a life cover and an investment opportunity within a single plan. Since with a single plan, people can meet their two critical financial goals, ULIPs have become popular over recent years.
Once you understand what is ULIP and have decided to go ahead with your purchase, the next step would be choosing the type of ULIP you want to buy. There are several types of ULIP you can choose from. Read further to understand the different types of ULIP and the benefits each have to offer.
ULIPs can be categorized in different ways. Below are some types of ULIP and the benefits each one has to offer:
Types of ULIP investments
Equity funds
Equity fund ULIPs are a type of high-risk, high-reward investment. These funds invest money in high-risk equity markets. They are usually preferred by investors who are looking for high returns and have a high-risk appetite.
Income, fixed-interest, and bond funds
This is an investment option for people who have a low-risk appetite. Since the money here is being invested in government securities, fixed-income securities, and corporate bonds. They usually come with moderate risk, and the returns are moderate as well.
Cash Funds
In this type of ULIP, the funds are directly invested in money market funds, cash, and bank deposits. These funds are of the lowest risk but the returns on these funds are also much lower compared to others.
Balanced Funds
For investors who are looking for the best of both worlds, balanced funds are the appropriate option. In balanced funds, the fund is allocated towards equity markets and debt instruments as well. The reason behind investing in high-risk and low-risk products is to balance out the risk appetite of the fund.
Types of ULIPs for wealth creation
Single premium / regular premium
Depending on your financial commitments and capacity, you can choose between a single premium and a regular premium. One of the ULIP benefits is that you can choose the frequency of payment at your convenience. A single premium is the type of ULIP where the policyholder pays a lump sum premium only once during the purchase of the plan. While a regular premium is when the policyholder makes recurring payments at regular intervals.
Life staged-based/non-life stage based
These types of plans are selected by individuals to meet their certain financial goals. They are chosen by the policyholder depending on the stage of their life. These plans are created with a view that over time the priorities of the policyholder change and so does their risk appetite. They are usually purchased by individuals to attain certain financial goals in their life.
Goal-oriented
Several insurance companies offer goal-based ULIPs. These types of ULIPs are specifically created to achieve the financial goal of the policyholder. The common goals for which these plans are created usually include retirement, a child’s education, medical emergencies, or even marriage. Irrespective of the type of goal-based ULIP you choose, the ultimate goal of the plan is to create a corpus of funds. This pool helps individuals achieve their long-term financial goals. One of the ULIP benefits is that it allows individuals to invest for the long haul in a disciplined manner.
Guarantee / non-guarantee
When you are looking for different types of ULIP, you will come across some plans that offer guaranteed returns and some which do not. For investors who want to mitigate any risk involved in their ULIP investment, they choose the guaranteed returns type of ULIP. With these ULIPs, they are rest assured that they will receive a fixed fund value and return when their ULIP matures. On the other hand, non-guarantee funds do not provide any fixed returns. Their returns depend on how the markets are performing, which can be low or high.
Above are some of the common ways that ULIPs are usually categorized. Once you have understood what ULIP is and what are its different types, ensure you compare different plans before narrowing it down to one.
