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What are the different types of ULIPs?

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We all have life goals that we wish to accomplish at a specific life stage. These goals can either be something simple or something that one wishes to fulfil no matter the difficulties involved. One thing that cannot be overlooked, however, is the finance to accomplish these goals. In a world where the cost of living keeps rising, accomplishing these goals would require a good amount of financial assistance.

Investing your income helps in creating wealth, which in turn can be used for the purpose of accomplishing these goals. A financial instrument that you can use for this purpose is a ULIP. What is a ULIP? How does it work? What are the types of plans? Read more to find out.

Understanding what ULIP is

ULIP or unit linked insurance plan is a type of life insurance policy. Apart from the benefit of investment, you get the added benefit of insurance in this policy. This negates the need for purchasing another policy just to get life cover. A part of the premium that is paid towards the policy is used for investing in funds offered with the policy. The investments are made on the basis of your requirements and risk appetite. Each fund has its own risk factor and rate of return.

The other part of premium is used for providing life insurance cover. Under this cover, your dependents would receive death benefit in the event of your untimely demise during the policy term. They would also receive maturity benefits once the policy matures.

What are the types of ULIPs?

There are different types of plans you can choose from when it comes to ULIPs. Each plan has its own benefit that might suit your requirement. They are:

  1. Premium based plans

In ULIPs, you have 2 different types of premium payment methods: Regular and Single. In regular premium method, you have the option of paying the premium at different intervals, such as monthly basis, quarterly basis, or yearly basis. In thesingle premium method, you get the option of making aone-time premium payment, which will be a lump sum amount. The premium payment option you choose is dependent on your income and your expenses. If you have multiple expenses dependent on your income, regular premium is beneficial. If your income allows you to make a big amount payment without creating financial instability, single premium payment can be done.

  1. Returns based plans

When you invest in ULIPs, it is always advised to invest in them for a long term. You have two options when it comes to selecting plans based on returns: guaranteed and non-guaranteed. In a guaranteed policy, your returns are safeguarded from different types of market risks. This is achieved by investing your money in low-risk-factor funds. On the other hand, in a non-guaranteed policy, your money is invested mostly in funds with a higher risk factor. The policy allows you to select the amount you wish to invest and the duration of those investments.

  1. Stage-based plans

The investments that you make in a ULIP policy are based on what your risk appetite is. However, as your grow old and reach a life stage, this appetite starts to lower.This means there will also be a change in what your life goals are. There are two stage-based plans: life-staged and non-life-staged. In a life staged policy,investments will be varied to give you a steady source of income with lower exposure to risk. In a non-life staged policy, the investments will not be varied at different stages of life, and they will stay the way they are.

  1. Requirement-based plans

Even though you may have mapped out at which stage a goal should be completed, sudden expenses cannot be ignored.These could include medical procedures or purchase of property. In such cases, the investments in your policy will be done in a way that allow you to do partial withdrawal of an amount that will help you manage those expenses. For example, if you are planning for retirement; a certain amount from your investment will get credited into a bank account so that you take care of your personal expenses post retirement. This payout could be from time to time.

Conclusion

If wealth creation and financial security for your loved ones is something you are looking for in a single plan, you should go for ULIPs. You can use the ULIP calculator to see how much you would be required to invest in it as per your goals.

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