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Types of ULIP Plans In India

ULIPs are a great way to combine life insurance with investment, helping you grow wealth while staying protected. There are different types of ULIP based on death benefits, investment funds, and financial goals. Whether you are looking for long-term growth, retirement planning, or securing your child’s future, ULIPs offer flexibility and control over your investments. Understanding their features can help you choose the right plan for your needs.

  • 13,073 Views | Updated on: Jan 10, 2024

Types of Unit Linked Insurance Plans (ULIP)

ULIPs combine the benefits of life insurance and investment, ensuring financial security and wealth creation. In addition to knowing you should also understand that it is available in various forms.

Types of ULIP Plans Based on Death Benefits

  • Type 1 ULIPs
  • Type 2 ULIPs

Types of ULIP Plans Based on Investment Funds

  • Equity Funds
  • Debt Funds
  • Liquid Funds
  • Balanced Funds
  • Cash Funds
  • Thematic Funds

Types of ULIP Plans Based on Wealth Creation Goals

  • Single and Regular Premium ULIPs
  • Life-Staged ULIPs & Non-Life Staged ULIPs
  • Guaranteed & Non-Guaranteed Plans ULIPs

Types of ULIP Plans Based on Death Benefits

One of the critical aspects of ULIPs is the death benefit they offer, which ensures that the policyholder’s loved ones are financially protected in case of an unfortunate event. Different types of ULIP based on their death benefits are.

Type 1 ULIPs (Unit Linked Insurance Plans)

  • Sum Assured: When you buy a Type 1 ULIP, you will choose a sum assured, i.e., the minimum guaranteed amount that your nominee will receive in case of your untimely death.
  • Fund Value: The fund manager of a ULIP will invest a portion of your premiums into different asset classes. The total market value of these investments will comprise the fund value.
  • Payout: In the case of your unfortunate passing, your nominees will receive the higher of the sum assured or the accumulated fund value.
  • Benefits: Lower mortality charges, better investment growth potential, and cost-effective insurance coverage. Ideal for individuals seeking balanced life cover and investment.

Type 2 ULIPs (Unit Linked Insurance Plans)

  • Death Benefit Payout: In case of the policyholder’s death, the insurer pays the nominee both the sum assured and the fund value.
  • Premium Costs: As this plan offers higher financial protection for dependents, the premium costs are greater than Type 1 plans.
  • Benefits: These plans offer both a guaranteed sum and the potential for additional returns linked to the performance of the underlying investment funds.

Types of ULIP Plans Based on Investment Funds

ULIPs offer a variety of investment fund options to cater to different risk appetites and investment goals. Here, let us take a look at different types of Unit Linked Insurance Plans based on investment funds.

Equity Funds

The fund from the investors is invested in the equity shares of one or more firms. These funds are riskier since they are directly linked to financial market movements but have a greater potential for expansion. They are suitable for investors who are willing to take on risk for higher returns.

Debt Funds

The funds are invested in debt instruments such as corporate bonds, government bonds, debentures, and fixed-income bonds. They offer moderate returns that are more predictable. Risk-averse individuals prioritize debt funds.

Liquid Funds

Liquid ULIP plans are ideal for reaching short-term financial objectives since they invest in highly liquid money market products, including certificates of deposit (CD), treasury bills, and call money. In addition to the shorter maturity period, these ULIP investments have high credit ratings and are a secure investment option for those with low-risk tolerance.

Balanced Funds

Under balanced funds, the risk is successfully spread among high-risk and low-risk investment alternatives by assigning one portion of the money to equities and the other to fixed-income debt securities. As an outcome, the returns provided by balanced funds are much more consistent and less volatile than those offered by pure stock funds.

Cash Funds

Cash funds invest in highly liquid, low-risk financial instruments such as cash deposits, term deposits, and money market funds. These investments closely resemble cash in terms of stability and accessibility, ensuring minimal risk while offering steady returns.

Thematic Funds

Thematic funds focus on specific investment themes or sectors such as technology, healthcare, or renewable energy. These funds capitalize on emerging trends or industries poised for growth, offering the potential for high returns.

Types of ULIP Plans Based on Wealth Creation Goals

ULIPs offer flexibility and customization, allowing investors to align their investment strategy with their wealth creation goals and risk appetite. The different types of ULIP based on wealth creation objectives are:

Single and Regular Premium ULIPs

  • Single premium ULIPs require a one-time lump sum payment at the start of the plan.
  • Regular premium ULIPs allow you to pay premiums at fixed intervals, making it easier to manage finances over time.

Life-Staged ULIPs & Non-Life Staged ULIPs

  • Life-staged ULIPs automatically adjust your investments based on your age and risk appetite. When you are younger, they allocate more to stocks as risk appetite is highest when you are younger. As you grow older, they shift towards safer investments like debt funds.
  • Non-Life Staged ULIPs do not change allocations based on age, allowing you to manage your investments as per your preference.

Guaranteed & Non-Guaranteed Plans ULIPs

  • Guaranteed ULIPs offer a minimum assured return, ensuring financial security regardless of market fluctuations.
  • Non-guaranteed ULIPs do not promise fixed returns but provide the potential for higher earnings based on market performance. They are suitable for risk-taking investors.

ULIPs to Secure Your Child’s Future

One of the significant advantages of ULIPs is their ability to secure your child’s future by simultaneously offering financial protection and investment growth potential. ULIPs can be effectively utilized to secure your child’s future in many ways.

Financial Protection

ULIPs provide a life insurance component, ensuring that in the unfortunate event of the policyholder’s demise, a lump sum amount is paid out to the nominee. By purchasing a ULIP, you can safeguard your child’s financial future, ensuring that they have the necessary resources to pursue their dreams and aspirations even in your absence. This financial safety net can cover various expenses, including education, healthcare, and other essential needs.

Long-Term Wealth Creation

ULIPs offer the flexibility to invest in a diverse range of investment funds, including equity, debt, and balanced funds. By allocating funds strategically based on your risk appetite and investment goals, you can potentially grow your wealth over the long term. Investing in ULIPs early in your child’s life allows you to benefit from the power of compounding, wherein returns earned on your investments are reinvested to generate additional returns, leading to accelerated wealth accumulation.

Goal-Based Investing

When investing in ULIPs for your child’s future, it is essential to identify specific financial goals, such as funding their education, marriage, or providing a financial cushion for their entrepreneurial endeavors. By aligning your investment strategy with these goals, you can tailor your ULIP portfolio to meet your child’s future financial needs effectively. Regularly review and adjust your investment strategy to ensure that you stay on track to achieve these objectives.

Flexibility and Control

ULIPs offer flexibility and control over your investment portfolio, allowing you to switch between different investment funds based on market conditions, risk appetite, and changing financial goals. This flexibility enables you to adapt your investment strategy to evolving market dynamics and optimize returns while mitigating risks. Additionally, ULIPs provide the option to make partial withdrawals or top-up premiums, providing liquidity and addressing any unforeseen financial requirements.

ULIPs for Retirement Planning

Retirement corpus building ULIPs can save you if your regular source of income quits and you have reached the end of your working years. Particular ULIP programs are created to care for you in your later years. After the plan expires, they offer regular payouts, and you will get sufficient funds to live comfortably.

ULIPs to Handle Personal or Medical Emergencies

Occasionally, there are significant expenses that we cannot avoid. Emergencies like medical problems, accidents, legal costs, settlement amounts, debt, etc., can truly hit you hard when you least expect them. Some programs assist you in creating a corpus that you can utilize in place of a health insurance policy. The plan enables you to partially withdraw from your greater maturity corpus to cover urgent expenses if you are in the hospital and require rapid cash.

Wrapping Up

ULIPs in India come in various types, each catering to different investment objectives, risk profiles, and financial goals. Whether investors seek wealth creation, financial protection, retirement planning, or securing their child’s future, there’s a ULIP plan tailored to meet their specific requirements. Understanding the features, benefits, and risks associated with each is essential for making informed investment decisions and achieving long-term financial objectives.

FAQ on Types of ULIP


1

What is ULIP and its types?

ULIP stands for Unit Linked Insurance Plan. It is an investment-cum-insurance product that offers both life insurance coverage and investment opportunities. There are various types of ULIPs available, including equity ULIPs, debt ULIPs, balanced ULIPs, child ULIPs, pension ULIPs, and ULIPs with guaranteed returns.



2

How many types of ULIP plans are there?

There are several types of ULIP plans available in the market, each designed to cater to different financial goals and risk preferences. Some common types of ULIP plans include equity ULIPs, debt ULIPs, balanced ULIPs, child ULIPs, pension ULIPs, and ULIPs with guaranteed returns.



3

What is a Type 2 ULIP death benefit?

In a Type 2 ULIP, also known as comprehensive ULIP, the death benefit is equal to the sum assured along with the fund value. This means that in the unfortunate event of the policyholder’s demise during the policy term, the nominee receives a lump sum amount equal to the sum assured plus the fund value accumulated till that point.


4

What are Type 1 and Type 2 ULIP plans?

Type 1 ULIP plans, also known as pure protection plans, offer a death benefit equal to the higher of the sum assured or the fund value to the nominee in case of the policyholder’s demise during the policy term. On the other hand, Type 2 ULIP plans, also known as comprehensive plans, provide a death benefit equal to the sum assured along with the fund value to the nominee.


5

What are the 5 charges of ULIP?

The five charges associated with ULIPs are:

  • Premium Allocation Charge
  • Policy Administration Charge
  • Fund Management Charge
  • Mortality Charge
  • Surrender Charge


6

What are the benefits of ULIP?

Some benefits of ULIPs include:

  • Life insurance coverage
  • Investment opportunities in various asset classes
  • Flexibility to switch between funds
  • Tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961
  • Potential for wealth creation over the long term
Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.

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