A ULIP or unit-linked investment plan is a combination of insurance and investment plan. Under this plan the person insured can pay the premium monthly or annually. A part of the premium is used to invest in the debt or equity funds and another part is used to provide life insurance cover. But here the investments depend on the market rates and hence there are risks associated with the ULIP plan. These risks are born by investors or the policyholder. There are multiple options to invest in the plan from which the policyholder can choose to include in their portfolio.
Types of Funds in ULIP plans
Types of funds in ULIP plans are:-
Balanced Funds - In this option, the ULIP plan invests in a mix of debt and equity funds so that the risk factor is considerably reduced. The insurer invests in low and high-risk funds.
Cash Funds - In cash funds, the money is invested in low-risk funds like term plans. market deposits and cash deposits.
Debt Funds - The money is invested in corporate bonds, debentures, securities, and fixed income bonds.
Equity Funds - This is the riskiest option of investment since debt funds are directly related to market risks but they offer high returns as well. It is suitable for investors with a higher risk appetite.
Liquid Funds - The money is invested in call money, treasury bills, and certificates of deposits or CDs. This is one of the safest options for investment. It is suitable for people with low-risk tolerance.
Types of ULIP plans
There are mainly four types of ULIP plans:-
Life staged ULIP funds - This ULIP plan is based on the assumption that the risk-taking capacity of a person decreases with time. Hence initially most of the money is invested into equity funds. As time progresses the money is transferred to debt funds. This plan helps in maintaining the risk and volatility of returns.
Single premium and regular premium ULIPs - As the name suggests, this ULIP plan has single premium and regular premium options, For single premium ULIP the policyholder pays the premium a single time only and in regular premium ULIP, the money is paid annually, semi-annually, quarterly and monthly.
ULIP plan based on wealth creation - In these plans, the money is invested mostly in the equity funds. It is ideal for a person insured who has a high-risk capacity and wants higher returns in a short period.
Guaranteed and non-guaranteed ULIP plan - Under guaranteed plans, the policy invests in funds that have a lower risk involved, and under non-guaranteed plans, the policy invests in funds having greater risk involved.
Benefits of ULIP plans
The benefits of the ULIP plan are:-
It provides life protection, investment, and saving under a single plan.
The plan provides higher market-linked returns.
It has insurance and investment benefits.
The policy has maturity and death benefits,
There are long term investment benefits.
It also offers withdrawal and tax benefits.
Hence, a ULIP planis a perfect combination of investment and insurance plans. It helps a person in securing money for their future investment goals.
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amrina alshaikh Joined: April 24th, 2018 Articles Posted: 229
