ULIP is an integrated financial product designed to cater to various investment and insurance needs with a broad range of variants.
ULIPs offers the dual benefit of life protection with wealth creation. It provides various fund options (equity, debt and balanced funds) to fit the needs of both aggressive and conservative investors. Flexible and tax-efficient features like switches and top-ups make it even more unique.
From a broader perspective, ULIPs segregate into classes based on the death benefits offered, asset allocation and purpose of investment.
Based on Life Cover Benefits
- Type I ULIPs: These plans provide sum assured or the fund value whichever is higher as the death benefit. In comparison, the premium for such plans is lower than type II plans.
For instance, an investor purchased a ULIP with the sum assured of Rs. 10 lakhs. He paid the premium for 7 years. His fund value now stands at Rs. 7.5 lakhs. In the event of the policyholder’s demise, the beneficiary will get a lump sum of Rs. 10 lakhs (higher of the sum assured and fund value).
- Type II ULIPs: This type of plans offer both the sum assured and the fund value as death benefits.
Considering the above scenario if the policyholder dies, the nominee or beneficiary will get the death benefit of Rs. 17.5 lakhs. Including both sum assured and fund value.
Based on the Chosen Asset Allocation
- Equity Market Linked Plans: These plans are high-risk-high-reward plans. Investments are into equities of various companies. Assets include large-cap, flexi-cap and sector-oriented stocks, etc. This plan carries the volatility of the stock market. Sticking to it for a long-term can bring significant returns. Equity-oriented ULIPs are well-suited for an aggressive investor.
- Hybrid Plans: These plans invest in both equity and debt in a balanced way of 60:40 proportions. Investors expecting a safe return at a moderate risk can consider this plan. In this case, a debt part acts as a cushion for your portfolio when the equity market sinks. Rebalancing the portfolio with free switches is a critical factor to optimising the return.
- Debt-oriented Plans: Debt plans invest in bonds, government securities and fixed interest-bearing instruments. This option is well-suited for conservative investors with an appetite for little risk. It is a safe and secure plan. These plans may not fetch you a higher return like equity and hybrid plans.
Based on Purpose of Investment
- For Children’ Education: This plan for child education takes care of your child’s life-stage needs even when you are not around. These plans offer financial support during significant life events of children such as higher education and marriage.
- For Retirement Planning: This plan offers retirement benefits. They are structured to provide regular income post retirement. Retirement plans allow you to invest a part of your income during working life to build a corpus for retirement. On maturity, you can withdraw a part of your corpus/fund value. The rest of the amount is invested in annuities to provide regular income.
- For Wealth Creation: This plan is designed to serve the investor purpose of long-term wealth creation. Most of these plans offer the automatic asset allocation feature, ensuring enhancement of your hard-earned money for the long run.
- For Health Benefits: This plan provides you with a double benefit of health protection and investment. Along with providing financial security for healthcare needs, it helps build a corpus for future contingency needs.
After knowing various ULIP options available in the market, choose the most suitable one based on your needs. With these investments, your hard-earned money continues to grow as you protect your loved ones. Choose the right ULIP based on your investment goal, time horizon and risk-taking ability.