A Unit Linked Insurance Plan (ULIP), which combines aspects of insurance and investing, is a great choice for investors. A portion of the premium you pay for a ULIP provides you with insurance coverage, and the remaining portion is invested in the stock market. The potential for returns is substantially bigger than other investment options because a portion of the premium is constantly invested over time in the stock markets.
The many ULIP plan types can typically be categorised either based on the sorts of funds your premium is invested in or based on their ability to generate wealth. The most popular ULIP investment types offered in India are briefly outlined here.
ULIPs according to the kind of funding
Not all ULIP financial market investment kinds put their investors’ money in stocks. Some of them also make investments in other financial products. Based on the types of ULIP Funds they invest in, the many forms of unit-linked insurance plans are described here.
- Equity – Here, the funds from the investors are used to buy equity shares in one or more businesses. Since equity investments are directly correlated to financial market movements, they are significantly riskier. However, there is also more room for expansion. Because of this, ULIPs that invest in equity are perfect for investors with a high tolerance for risk.
- Debt – The money is invested in debt instruments such as debentures, corporate bonds, government bonds and securities, and fixed-income bonds under these kinds of unit-linked insurance plans. These investments have medium to low risk, but they also have only moderate rewards.
- Liquid funds – These kinds of ULIP plans invest customers’ money in highly liquid money market assets like treasury bills, call money, and certificates of deposit, making them ideal for achieving short-term financial objectives (CD). These funds’ maturity periods, in contrast to other ULIPs, are typically a few weeks to months short.
- Balanced funds – Some ULIPs invest in a mix of equity and debt securities in an effort to reduce risk. The risk is successfully distributed across high-risk and low-risk investment options by assigning one portion of the ULIP Funds to equity and other to debt funds. As a result, compared to returns from pure stock funds, returns from balanced funds are more consistent and far less volatile.
- Cash funds – Term deposits, cash deposits, and market funds are examples of very low-risk cash fund vehicles to which some types of unit-linked insurance plans allocate their funds. Even if the returns offered by these ULIPs are the lowest of all the alternatives, the risk is also very minimal. They are, therefore, a great option for those who are really risk-averse and want to minimise it.
- ULIPs based on wealth creation – The ability of unit-linked insurance policies to generate money also determines how they are categorised. These strategies were developed specifically to increase return on investment. • You can use ULIPs to create a market-connected corpus that is specifically designated for each of your financial goals, and you can verify this with the use of a ULIP calculator. Some of the several ULIP plan types that concentrate on wealth generation are listed and explained below.
- Single premium and regular premium ULIPs – A single premium ULIP plan only requires a single premium payment, which is due at the time of purchase, as the name implies. In contrast, a regular premium ULIP allows you to make monthly premium payments from the time of purchase until the plan’s maturity. You have the option of paying the premiums in monthly, quarterly, semi-annual, or annual instalments, depending on your financial position. The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.
- Life-staged ULIPs – These unit-linked insurance plans work under the premise that as investors get older, their capacity for taking risks decreases. Therefore, these plans split the premium into equity and debt instruments, investing a portion of the premium in each. In the beginning, a larger amount of investment is allocated to equity than to debt. These ULIPs gradually raise the amount of investments in debt instruments and decrease the proportion of investments in equity as the investor ages.
- Guaranteed and non-guaranteed ULIPs – Guaranteed ULIPs provide a strong emphasis on capital preservation. Because they only invest a tiny amount of your premium in equities, these kinds of ULIP plans reduce your exposure to market risk. Guaranteed ULIP plans are an ideal option for investors seeking consistent gains over a longer time horizon. The goal of non-guaranteed ULIPs, on the other hand, is to maximise wealth building by enabling you to invest a larger percentage of your premium in the stock market.
These classifications go on to demonstrate that you can select a ULIP plan that matches your risk tolerance and long-term financial objectives.
Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.