Unit Linked Insurance Plans, ULIPs, are investment-oriented policies that help you participate in the capital market and enjoy the potential for attractive returns. Moreover, what scores brownie points is the added insurance coverage. While you can watch your investments grow with market-linked returns, you can also enjoy insurance protection in the face of unfortunate emergencies. Thus, ULIPs allow you to plan for your financial goals and provide financial security to your family in your absence.
Besides the above-mentioned ULIP benefits, there are also different types of plans that you can invest in. Insurance companies offer different types of ULIPs that you can choose based on your investment strategy and financial goals. So, let’s delve into the types of ULIP plans that are available in the market.
Types of ULIP Based on Premium Payment Term
ULIPs can be categorised based on the premium payment modes that they involve. You can find the following two types of ULIP if you differentiate them based on their premium paying term:
- Single premium ULIPs
Under these ULIPs, you need to pay the premium only once when you buy the policy. Thereafter, you can enjoy coverage for the entire tenure.
- Limited or regular premium ULIPs
Under these plans, you are required to pay the premium either for a limited tenure or for the entire length of the policy.
Most ULIPs allow single, limited and regular premium payment modes. You can, thus, choose a premium mode that best suits your finances.
Types of ULIP Based on Coverage Tenure
ULIPs can also be differentiated based on the coverage tenure that they offer. There are two types of ULIP in this category:
- Whole life ULIPs
These ULIPs allow coverage till 99 or 100 years of age, thereby insuring you for your entire life. The premium payment term is, usually, limited and you can enjoy insurance protection and wealth creation lifelong.
- Limited tenure ULIPs
These ULIPs have a specified coverage tenure that might range from 10 to 40 years. You can choose a tenure as per your requirement, and the policy would mature if you survive till the chosen tenure.
Types of ULIP Based on Investment Needs
The most common differentiating factor among ULIPs is the needs that they fulfil. Insurance companies offer three main types of ULIP and each fulfils a specific kind of need. Have a look:
- Savings-oriented ULIPs
These ULIPs are aimed to provide you with an avenue to invest and grow your wealth. These are regular ULIPs wherein you can choose to invest your premium in the available funds. Some plans also allow tailor-made investment strategies to manage your investments in an automated manner.
- Child ULIPs
Child ULIPs are designed to create a corpus for your child’s future. Under these plans, the parent is usually the life insured and the child is the beneficiary. A premium waiver rider is, usually, inbuilt in the scope of coverage. With this rider, if the parent suffers premature death, the plan does not get affected. The insurer takes up the liability of paying the premium on the parent’s behalf and the policy continues. Thereafter, on maturity, the fund value is paid. Child ULIP plan ensures that the child planning goal is fulfilled even if the parent is not around.
- Retirement-oriented ULIPs
Also called pension ULIPs, these ULIPs are deferred annuity policies. They help you to build up a retirement corpus with market-linked returns. In the case of death of the insured, higher of the sum assured or the fund value is paid. On maturity, however, you can choose from any of the following options:
- Buy a single premium deferred annuity plan
- Withdraw up to 60% of the corpus in a lump sum and use the remaining to invest in a deferred or immediate annuity plan
- Defer the vesting date (if available)
Which One Should You Choose?
The choice of a ULIP plan depends on your financial goals, affordability and investment horizon. Make a financial plan and then choose ULIPs based on your needs. You can also choose multiple plans and earmark each to the different financial goals that you have.
So, understand the different types of ULIP available in the market and then choose those which align with your needs.
