Types of ULIP Plans In India
Having yourself covered under a comprehensive life insurance policy and also mobilizing your idle savings is a really prudent investment strategy. There are many types of ULIPs categorized in different ways, when being approached with different mind sets. ULIPs are popularly categorized by risk, and by investment objective.
What are the different types of ULIP Investments?
- Equity Funds: These ULIPs invest primarily in high-risk equities and stocks on companies. They are the riskiest ULIP investment, and also the one offering the highest rewards. If you have a medium-to-high risk appetite, and think that fortune favours the bold - go for one of these plans. If you win here you win big. High risk, high reward.
- Income, fixed-interest, and bond funds: Under these ULIPs, your funds will be invested in government securities, fixed-income securities, corporate bonds, and the like, which offer a medium and risk, and medium reward. Medium risk, low to medium reward.
- Cash Funds: Investments in these ULIPs will see your corpus directed towards money market funds, cash and bank deposits and other money market instruments which are in the lowest risk category. Low risk (almost no risk) and low reward.
- Balanced Funds: These are the most stable and prudent investment based on the very fact that they vary the amount of investment that goes to different places. It invests in proportion, and divides the total investible amount between equity investments in high risk equities, company stocks, etc. and fixed-interest instruments which pose a lower risk. Medium risk, high reward.
ULIPs based on the investment objectives:
- To fund your child's education: This is one of the more popular reasons for choosing a ULIP - as it meets the requirements of securing your children and dependents against financial suffering in the event of your death, and plans pay-outs in such a way that they will be used for the intended purpose. These ULIPs usually pay benefits out once a year, when it's needed for the specific purpose for which it was taken.
- To build a corpus of funds: Idle savings can be put to work through investment plans, and one that also gives you the option of life insurance cover basically kills two birds with one stone. Instead of navigating through hell to find the right investment at the right interest rate and the right tenure, people tend to let the insurance company manage their funds. Building a large corpus is a time consuming venture, when approached through the regular method of hard work, ULIPs limit your involvement in the management of funds and let your enjoy a piece of the profit cake.
ULIPs available for creating wealth:
- Life stage based s/ non-life stage based: These plans consider themselves to be your financial aides, and vary your investments between different levels of risk as you get older. The plan understands that priorities change over time, and that risk appetite is highest in your youth. Investments will be staggered between equity & debt instruments in different proportions at different times.
- Guarantee / non-guarantee: ULIPs today offer guaranteed additions and benefits, but these are generally very long term. Guaranteed ULIPs also separate the investor from any kind of risk, although the reward is slightly lesser. Non-guaranteed ULIPs offer a range of investment to choose from, ranging between varying levels of risk. While these make no promises, they afford you the opportunity to decide where your money goes, and when.
- Single premium / regular premium: Everyone has their own premium paying capacity. Single premium plans require one lump sum of premium to be paid at the start of the plan, and regular premium plans divide and stagger the premium payments over regular intervals.
- To plan for retirement: When your regular source of income stops, and you're past the part of your life when you were able to work, retirement corpus building ULIPs can come rescue you. There are specific ULIP plans designed to take care of you in your twilight years. They offer regular pay-outs after the plan ends, and you will still receive an amount that can keep you comfortable. It is when these payments start that you will truly realise the benefit of working for money, and having money work for you.
- To meet medical or personal emergencies: Sometimes there are huge, unavoidable expenses that we must bear. Medical emergencies, accidents, legal fees, settlement amounts, debt, etc. can really hit you hard when you least expect it. There are plans that help you build a corpus and use it as you would a health insurance policy. When you're in the hospital and in need of quick cash, fast, the plan allows you to partially withdraw from your larger maturity corpus to meet the immediate expense.
GST of 18% is applicable on life insurance effective from the 1st of July, 2017
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