ULIPs are ground-breaking life insurance products that offer the dual benefits of life insurance coverage and investment opportunity. Over the years, ULIPs have found their fair share of suitors, admirers and investors who are hooked to tax-efficiency, investment flexibility, control and liquidity offered by this powerful investment instrument. Though a large number of investors now pin down their faith upon ULIPs, there are many who still do not understand the different types of ULIP plans available at their disposal.
In this article, we’ll pull the curtains and reveal the 3 different categories of ULIPs and the types of plans available under these three categories based on death benefits, risk level and investment objective.
So let’s dive right in!
There are two different types of ULIPs available in India based on death benefits. These are Type I and Type II ULIPs.
1. Type-I ULIPs: These are ULIP plans that offer the total fund value or the total sum assured as the death benefit upon the death of the policyholder during the term of the policy.
2. Type-II ULIPs: These are ULIP plans that offer both the total fund value and the total sum assured as the death benefit upon the death of the policyholder during the term of the policy.
Let’s understand the difference between the two ULIPs with an example:
Let’s assume a policyholder selects Sum Assured of Rs. 7Lakhs and his fund value is Rs. 5.5Lakhs after paying the premium for 5 years. In the event of the death of the policyholder:
There are three different types of ULIP plans available in India to suit the risk tolerance level of different types of investors in the county. These are:
1. Equity Linked Plans: These ULIP plans invest in the equities of various companies. Asset allocation of this type of ULIP plan includes sector-oriented stocks, flexi-cap, large-cap, etc. This type of ULIP plan falls in the high-risk category and is best suited for risk-takers or aggressive investors. These ULIP plans are subject to market volatility, but often yield significant returns in the long-term.
2. Hybrid Plans: As the name suggests, Hybrid ULIP plans invest in both equity and debt market in balanced proportion of 60:40. This type of ULIP plan falls in the moderate-risk category and is best suited for investors with moderate risk appetite. In this type of ULIP plans, the debt part of the investment acts as the cushion in case of any volatility in the equity market. Investors can rebalance their portfolio with fund switches to optimize their returns.
3. DebtLinked Plans: These ULIP plans invest in debt assets such as fixed interest-bearing instruments, bonds and government securities. This type of ULIP plan falls in the low-risk category and is best suited for conservative investors with low risk tolerance. Since these ULIP plans are safe and aren’t exposed to market volatility, the returns generated by these plans are lesser than that of equity linked plans.
Based on Investment Objective
There are four different types of ULIP plans based to suit the different investment objectives of different investors in the country. These different types of ULIP plans available in this category are:
1. ULIPs for Children’s Future: These ULIP plans are thoughtfully conceptualized tocater to their needs of the children, at different stages of their life, in the event of the death of the policyholder. These ULI P Plans provide children of the deceased policyholders with financial support at the time crucial times in their life such as higher education, marriage, etc.
2. ULIPs for Retirement: These ULIP plans are specially designed to ensure happy and hassle-free retirement for the policyholders. They provide policyholders with regular income post their retirement. Retirement ULIP plans allow investors to invest a part of their income to build a sizeable corpus for their retirement. Upon the maturity of the policy, a part of the fund value could be withdrawn by the policyholders and the other part could be invested in annuities to ensure regular income.
3. ULIPs for Health Solutions: These ULIP plans provide the double benefits of investment opportunities and comprehensive health protection. They help policyholders bear the health care expenses and build a corpus for future health care needs.
4. ULIPs for Wealth Creation: These ULIP plans are perhaps the bestselling ULIP plans and are designed to help investors create wealth in the long-term. They offer automatic asset allocation to help investors earn lucrative returns on the investment and create sizeable wealth during the tenure of the plans.
Now it’s Your Turn!
So there you have it – different types of ULIP plans available in India for investment in 2019-20. Now do well to pick the type of ULIP plan that best suits of risk tolerance, and investment objective. Remember, investing in the right type of ULIP plan will go a long way in ensuring lucrative returns for your investment and comprehensive financial security for your loved ones.
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