We often tend to spend a lot of time deciding whether to opt for a Life Insurance plan or invest in Mutual Funds to make the most of our money. While some people go in for an insurance plan, some prefer investment options like Mutual Funds. Then there’s a bunch of smarter ones who decide to get the benefits of both by opting for Unit Linked Insurance Plans (ULIP).
The logic is simple—why compromise when you can get the best of both worlds?
What’s a ULIP?
A ULIP is a type of insurance that lets you enjoy the benefits of both insurance and investments. How? A part of the premium that you pay towards the ULIP is directed towards insurance, while the rest is used to invest in funds available under a specific plan.
They provide you with a way to make the most of your idle savings by giving you a good life cover while ensuring that you earn some money too. You can choose the funds you want to invest in (under a ULIP) based on your risk profile.
Types of funds under ULIP
The funds under ULIP investments can be categorised into the following types:
As the name suggests, these funds will be focused on stock market investments. Hence, the risk involved in these funds is relatively higher than the rest, as it’s dependent on stock market movements.
Investments made towards cash funds are basically directed towards money market funds, cash and bank deposits that fall under the lowest risk and low reward category. This is for those who have a low-risk profile.
These are medium risk and medium reward investments, where the funds are invested in proportion in equity and debt. The total investible amount is divided between equity investments in high-risk equities, company stocks and debt investments.
Additional Reading: Types of Term Life Insurance
Types of ULIPs
There are different types of ULIPs depending on your investment objectives. There are a few that are exclusively used for creating wealth, while others are used to handle the key, investment-intensive events like your child’s education. Here are a few ULIPs that help in creating wealth:
ULIPs come with a lot of additional benefits that are usually long term. Although the rewards are slightly lesser in case of guaranteed ULIPs, they protect the investor from any kind of risks. The idea is to protect your capital. Non-guaranteed ULIPs, on the other hand, come with a wide range of investment options to choose from, with varying levels of risk. The latter also gives you the opportunity to decide where your money goes and when.
Single premium/Regular premium
Since the premium paying capacity differs from one person to another, you can either choose to go with the single premium plan that requires one lump sum to be paid at the beginning or you can choose to take up the regular premium plan where no lump sum is needed and the premium can be paid at regular intervals.
Life stage based/Non-life stage based
As your age progresses, your investment needs change as well. Keeping that in mind, the life stage based plan understands your changing needs and reduces the risk for you as you grow older. Investments are staggered between equity & debt instruments in different proportions at different times.
Additional Reading: ULIPS – Better as a long-term investment option!
To plan for retirement
If you plan well, these retirement plans can come in handy when you’re old and no longer in a state to work. Some specific ULIP plans have been designed to assist you so that you can make the most of your retired life comfortably. They provide regular payouts after the plan ends and keep you relaxed in your old age.
To meet medical or personal emergencies
Some medical and personal emergencies can occur when you least expect them. These could be major accidents, other medical emergencies, and urgent debt payments etc. that require you to pay some quick cash. To cover such incidents, some ULIPs provide you with the option to partially withdraw from a larger maturity corpus, making your life simple.
Need more assistance with ULIP plans? Don’t worry!