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Types of ULIP Plans In India

ULIP plans in India offer a diverse range, including equity, debt, and balanced funds, allowing investors to tailor their investments to their risk appetite and financial goals.

  • 6,650 Views | Updated on: Jan 10, 2024

Unit-Linked Insurance Plan (ULIP) is a type of life insurance that invests your money over time to create wealth for the future. The investment is funded using high-grade market securities, including stock and debt. As a consequence, ULIPs are an excellent addition to your investment portfolio.

Key Takeaways

  • ULIP plans in India offer a mix of investment options such as equity, debt, and balanced funds.
  • They provide the dual benefit of insurance coverage and investment opportunities.
  • Investors can choose their preferred investment strategy based on risk appetite and financial goals.
  • These plans offer flexibility in terms of premium payment and fund switching options.

Due to fund alternatives that provide steady returns, low levels of risk, or both, ULIP plans are becoming more popular. Many insurance banks, companies, and financial organizations offer these plans in India, allowing policy purchasers to select from various alternatives. Consequently, your money will generate significant returns and life insurance cover for your loved ones during the vesting period.

What is a Unit-Linked Insurance Plan?

Unit-linked insurance plan (ULIP) is a type of life insurance plan that offers policyholders the dual benefit of insurance coverage and investment opportunities. It is a unique product that offers a wide range of investment options, allowing policyholders to invest in various funds and securities, including stocks, bonds, and mutual funds.

In a ULIP, the premium paid by the policyholder is divided into two parts, i.e., the insurance component and the investment component. The insurance component provides the policyholder with a life cover, while the investment component is invested in various funds, as per the policyholder’s choice. The returns from these investments are then credited to the policyholder’s account, which can be used for various purposes such as education, retirement, or any other long-term financial goals.

Types 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 used to buy equity shares in one or more firms. Equity investments are significantly riskier since they are directly linked to financial market movements. However, on the other side, the potential for expansion is greater. As a result, ULIPs are appropriate for risk-averse individuals with a high-risk tolerance.

Debt Funds

The investment of funds in debt instruments such as corporate bonds, government bonds and securities, debentures, and fixed-income bonds are various ULIP plans. While these instruments have a medium to low-risk profile, they also have a moderate return profile.

Liquid Funds

Liquid assets 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. Unlike other ULIPs, these liquid funds have a shorter maturity time, usually weeks to months. In addition, most of these ULIP investments have high credit ratings, making them a secure investment option for those with low-risk tolerance.

Balanced Funds

Some ULIPs invest in a blend of equities and debt assets to reduce risk. 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 deposits, term deposits, and market funds are all examples of relatively low-risk cash fund vehicles used by some types of ULIP Plans. While the earnings on these ULIPs are the lowest, the risk factor is also the minimum. As a result, they’re a suitable option for risk-averse investors who wish to minimize their risk as much as possible.

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. Thematic ULIPs allow investors to align their investments with their convictions or capitalize on niche opportunities within the market.

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 plans based on wealth creation objectives are.

Single and Regular Premium ULIPs

Regular premium plans divide and spread the premium payments over regular intervals, while single premium plans call for a single premium payment to be made at the start of the plan.

Life-Staged ULIPs & Non-Life Staged ULIPs

As you get older, these programs, which are your financial assistants, shift the investments among various risk levels. The plan is aware that risk appetite is strongest in youth and that priorities vary over time. Investments will alternate between stock and debt instruments in varying ratios and at various times.

Guaranteed & Non-Guaranteed Plans ULIPs

Guaranteed ULIPs provide investors with a minimum guaranteed return on their investment, ensuring a level of financial security. Non-guaranteed ULIPs do not offer a minimum guaranteed return but instead, provide the opportunity to earn potentially higher returns linked to the performance of the underlying investment funds. These plans are ideal for investors willing to take on higher risk in exchange for the potential of greater wealth accumulation over the long term.

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 plans based on their death benefits are.

Type 1 ULIPs (Unit Linked Insurance Plans)

Type 1 ULIPs, 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. These plans prioritize providing a financial safety net to the policyholder’s dependents, ensuring that they receive a substantial sum to cover their financial needs in the absence of the breadwinner.

Type 2 ULIPs (Unit Linked Insurance Plans)

Type 2 ULIPs, also known as comprehensive plans, provide a death benefit equal to the sum assured along with the fund value to the nominee in case of the policyholder’s demise during the policy term. These plans offer both a guaranteed sum and the potential for additional returns linked to the performance of the underlying investment funds.

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’ve 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 expense 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 unit-linked insurance plan 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

- A Consumer Education Initiative series by Kotak Life

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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