The Buyt Desk
ULIP, an acronym for Unit Linked Insurance Plan is a combination of life insurance policy and investment. Therefore, it is an ideal choice for a policyholder or a beneficiary as they get to benefit from one investment. Some amount invested in ULIP includes the insurance premium and gives insurance to the policyholder. However, some amount goes straight towards investment in the financial market.
Types of ULIP
There are different types of ULIP and these are described below.
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Equity
In this ULIP, the invested amount is used for purchasing the equity shares of various companies. Since the investments are connected to fluctuations in the financial market, this type of ULIP is considered risky. But, there are also higher chances for growth. So, this ULIP is a perfect choice for risk-friendly investors who are expecting higher returns.
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Debt
In this type of ULIP, the amount goes into debt instruments including debentures, fixed-income bonds, government bonds, corporate bonds, etc. The risk in this ULIP is comparatively low. The investor receives moderate returns.
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Liquid Funds
Investors having low-risk tolerance find this type of Unit Linked Insurance Plan an ideal choice. It meets the investors’ short-term goal because its maturity period differs from weeks to some months. It is also considered to have strong credit ratings which further declares it the best low-risk investment option for investors. The amount in this ULIP is invested in money markets like treasury bills, CDs (certificates of deposit), or call money.
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Single and Regular Premium
Investors in this ULIP have to pay the premium just once when they are buying the ULIP. However, they should more often pay premium charges based on the regular ULIP type. They can select a monthly, quarterly, or annual plan for premium payment.
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Life-Staged ULIPs
Under life-staged ULIPs, investors’ risk factor reduces with their increasing age. In the starting phase, a huge part of the investment amount goes into equity, and the reduced part moves into debt. As the investor grow older, more of their investments transfer into debt instruments and less they carry the equity.
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Guaranteed & Non-Guarantee Plans
In a guaranteed ULIP, the investor receives a better return over long-term investments. Guaranteed ULIP would be the right choice if the investor wants to save. That’s because the policyholder receives negligible exposure to equity funds.
Investors under non-guarantee ULIP receive better exposure to equity funds. This eventually provides investors with the increased possibility of growth they want to create wealth. They will also get a wide range of options to select from.
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Balanced Funds
Investors who wish to have a lower risk and receive increased returns can opt for balanced funds Unit Link Insurance Plans. This type of ULIP has lower risk involved than a pure equity plan. Some ULIPs invest in equity as well as debt instrument. Such investments are split into two proportions – equity and debt instruments.
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Cash Funds
Under this type of Unit Linked Insurance Plan, the risk factor is almost insignificant. So, it is an excellent choice for risk-averse people. But, the returns are comparatively lower than other ULIPs.
Final Thoughts
All these are some important types of ULIPs. It shows how you figure out a specific ULIP according to your financial planning and risk appetite. For example, to reduce the risk, you can choose equity funds or debt and select a risky one. However, many other alternatives are also available at the same time to choose from accordingly.
