What Are the Different Types of ULIPs?
While investing our hard-earned money in a financial instrument, we all have a goal in mind that must be achieved with the returns. Similarly, for ULIP plans, you can pick the right type of policy by understanding your risk appetite and future goals to earn good returns. So, today, let’s find out the various types of Unit-Linked Insurance Plans laid out based on the fund type and returns.
Types of Unit-Linked Insurance Plans
Based on Fund Types:
Here are several kinds of ULIP policies based on fund types that you should know about:
- Equity funds
In such a type of ULIP policy, part of the policyholder’s premium is invested in equity funds. The corpus is used to buy equity shares of companies to earn higher returns. This type of investment is riskier when compared to other fund types as they highly depend on the market movement. The share market is known to be volatile and thus, investor’s need to have an increased risk appetite to opt for an equity fund to earn ULIP plans returns. It is always recommended to stay invested for the long term when choosing equity funds so as to balance the risk over a longer tenure.
- Debt funds
In a ULIP policy, you have the choice to opt for debt funds, which mostly invest the corpus in government bonds, debentures, fixed income bonds, corporate bonds, etc. These financial instruments have relatively medium to low risk. Hence, policyholders who do not have a high-risk appetite and wish to earn stable returns can select debt funds. However, this type of investment also gives moderate returns in comparison to equity fund. So, many investors tend to switch to debt funds as they grow older to reduce their risk exposure.
- Cash funds
Some ULIP policies also park the investor’s corpus in cash fund financial instruments which have low risk. These include cash deposits, market funds, term deposits, etc. Though you may not earn higher returns when compared to other fund types, the risk exposure is very low. Thus, investors who have a low-risk appetite and do not wish to have high-risk exposure can choose to invest in cash funds.
Based on Wealth Creation:
Let’s look at the types of ULIP policies based on the factor of wealth creation where the objective is to earn lucrative returns:
- Life stage ULIP policy
Such a ULIP policy type is based on the life stage goals that you want to achieve in the long term. Thus, based on this, it is assumed that an individual’s risk appetite reduces as they grow older. So, initially, a greater portion of your premium is invested in equity funds when you are younger. But with an increase in age, the proportion of debt fund investment goes up with lower equity fund investment. Such a strategy ensures that the ULIP returns match your life goals and your current financial needs.
- Single and regular premium ULIP
Right from the name, you can guess that single premium ULIPs are the type where you make a one-time payment. Thus, the financial burden of paying for an insurance policy is off your shoulders. However, regular premium ULIPs enable you to make payments periodically for a set policy tenure. Depending on your financial condition and income inflow, you can choose either one.
- Guaranteed and non-guaranteed ULIP
In guaranteed ULIP returns, the purpose is to get stable returns from your investment for the tenure of the policy. Thus, a very less portion of your premium is dedicated towards equity funds for guaranteed returns. On the contrary, non-guaranteed ULIPs invest an increased portion of your premium in equity funds to earn greater returns with high-risk exposure.
With this, you must have understood the different types of ULIPs available in the market to help you pick the right one! Check out the ULIP calculator to estimate the returns you can earn from your investment in the long term.