Types of ULIP Plans in 2024

Unit Linked Insurance Plans (ULIPs) seamlessly integrate insurance and investment components. It offers you the opportunity to participate in the capital market while providing life coverage. A range of ULIP plans are available today, each tailored to diverse financial goals and risk appetites. This introduction provides an overview of the various types of ULIP plans in 2024.

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Overview of ULIP Plans

ULIP, or Unit Linked Insurance Plan, is a financial product that provides you with a mix of both insurance and investment. It offers you the flexibility to invest in various funds while providing life insurance coverage. ULIPs allocate premiums to different funds based on your risk appetite, allowing you to participate in the potential returns of the market. This dual-purpose nature makes ULIPs a popular choice for individuals seeking both insurance protection and wealth creation.

Types of Unit Linked Insurance Plans (ULIP)

Let us learn the various types of Unit Linked Insurance Plans (ULIPs) from the list mentioned below:

  1. ULIP Plans Based on Death Benefits-

    • Type 1 ULIP Plan

    • Type 2 ULIP Plan

  2. ULIP Plans Based on Investment Funds

    • Equity Fund

    • Debt Fund

    • Balanced Fund

    • Guaranteed Funds

    • Thematic Funds

  3. ULIP Plans Based on Wealth Creation Goals 

    • Guaranteed & Non-Guaranteed Plans

    • Single and Regular premium

Life-staged ULIPs & Non-Life Staged ULIPs

In the following sections, let us understand the various types of ULIP plans in detail.

Types of ULIP Plan Based on Death Benefits:

There are two main types of ULIPs when it comes to death benefits they are as follows:

Type 1 ULIPs (Unit Linked Insurance Plans)

  • Death Benefit Payout: In case of an unfortunate event, the beneficiary receives the higher of the sum assured and the fund value accumulated at the time of death.

  • Sum Assured: This is a guaranteed minimum amount payable by the insurance company upon the policyholder's death. It provides a safety net for your loved ones.

  • Fund Value: This is the market value of your investment units in the ULIP plan. It fluctuates based on the performance of the underlying assets.

Type 2 ULIPs (Unit Linked Insurance Plans)

  • Death Benefit Payout: The beneficiary receives the sum assured plus the fund value accumulated at the time of death. This guarantees a minimum payout regardless of market performance.

  • Higher Premiums: Compared to Type 1 ULIPs, Type 2 plans typically have higher premiums due to the guaranteed nature of the death benefit.

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Type 1 vs. Type 2 ULIP Plan

Feature Type 1 Type 2
Death Benefit Payout Higher of sum assured and fund value Sum assured + fund value
Sum at Risk Decreases over time Constant (sum assured)
Premiums Lower due to decreasing sum at risk Higher due to constant sum at risk
Returns Generally lower Generally higher due to full participation in the market
Risk Lower Higher, depends on market performance
Focus Balanced wealth creation and life cover Growth-oriented investment
Suitable for Risk-averse investors Risk-tolerant investors aiming for high returns

People also read: What is ULIP

Which is Better - Type 1 vs Type 2 ULIP Plan?

Type 1: ULIP plans offer a fixed sum assured but higher charges, making them suitable for risk-averse individuals. 

Type 2: ULIP plans provide flexibility in choosing the sum assured and have lower charges, making them more appealing for those seeking investment flexibility. 

Ultimately, the choice depends on individual risk tolerance and financial goals.

Types of ULIP Based on Investment Funds

Here is a breakdown of common ULIP fund types:

  1. Equity Funds:

    • Focus: High growth potential by primarily investing in stocks.

    • Risk: High, susceptible to market fluctuations.

    • Suitability: Aggressive investors with long-term horizons.

  2. Debt Funds:

    • Focus: Capital preservation and stable returns through investments in bonds and government securities.

    • Risk: Low to moderate, depending on the specific debt fund type.

    • Suitability: Risk-averse investors seeking regular income or capital protection.

  3. Balanced Funds:

    • Focus: Balanced approach with a mix of equity and debt investments for moderate growth and stability.

    • Risk: Moderate, varies based on the equity-debt allocation.

    • Suitability: Moderate-risk investors seeking a blend of growth and stability.

  4. Guaranteed Funds:

    • Focus: Guarantees minimum returns on your investment, often linked to bank deposit rates.

    • Risk: Very low, close to risk-free investments.

    • Suitability: Highly risk-averse investors prioritizing capital protection over high returns.

  5. Thematic Funds:

    • Focus: Invest in specific sectors or industries like infrastructure, healthcare, or technology.

    • Risk: Varies depending on the chosen sector and its market performance.

    • Suitability: Investors with strong convictions in specific sectors seeking targeted exposure.

Types of ULIP Based on Wealth Creation Goals 

The different types of ULIP plans that target different wealth creation goals are as follows:

  1. Guaranteed & Non-Guaranteed Plans

    • Guaranteed Plans: Offer minimum guaranteed returns on your investment, and it is ideal for risk-averse individuals seeking capital protection. However, returns tend to be lower than non-guaranteed plans.

    • Non-Guaranteed Plans: Invest in market-linked funds offering potentially higher returns but also carry higher risk. Suitable for investors with longer investment horizons and higher risk tolerance.

  2. Single and Regular premium

    • Single Premium: Pay a one-time lump sum premium initially. Offers flexibility and reduces administrative costs but requires substantial upfront investment.

    • Regular Premium: Pay smaller premiums periodically, like monthly or yearly. Easier on the budget but may take longer to reach your wealth creation goals.

  3. Life-Staged ULIPs & Non-Life Staged ULIPs

    • Life-Staged ULIPs: Tailor their investment strategies to cater to different life stages, automatically adjusting fund allocation based on your age and risk profile. Ideal for long-term investors seeking convenience and dynamic adjustments.

    • Non-Life Staged ULIPs: Offer a fixed investment strategy throughout the policy term. Require active management from the investor who needs to adjust fund allocation manually as their risk appetite or goals change.

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Benefits of ULIP (Unit Linked Insurance Plan)

The key benefits of a ULIP Plan are mentioned below:

  • Dual benefits: ULIPs offer the dual benefits of investment and insurance, providing a comprehensive financial solution.

  • Flexibility: ULIPs offer flexibility in choosing the fund options, premium payment frequency, and the amount of premium.

  • Market-Linked Returns: ULIPs invest in market-linked funds, providing higher returns based on market performance.

  • Switching Option: ULIPs offer the option to switch between fund options, providing the flexibility to change the investment strategy based on market conditions.

  • Long-Term Investment: ULIPs offer a lock-in period of 5 years, encouraging long-term investment and wealth creation.

  • Life Cover: ULIPs offer life cover, providing financial protection to your family in case of an unfortunate event.

People also read: ULIP Calculator

In Conclusion!

Unit Linked Insurance Plans (ULIPs) offer a versatile range of investment and insurance options, catering to the diverse financial goals and risk appetites of individuals. Whether you prioritize wealth creation, risk coverage, or a combination of both, the various types of ULIPs provide a flexible and personalized approach to financial planning. It is crucial for you to carefully assess your needs and preferences before choosing a specific ULIP plan in order to ensure a strategic alignment with your long-term financial objectives.

FAQ's

  • What is ULIP and its types?

    A ULIP, or Unit Linked Insurance Plan, is a type of life insurance policy that combines the benefits of insurance with the potential for investment returns. It is a hybrid product that offers both protection and growth, making it a popular choice for people who want to secure their financial future.
  • What benefits will I get on the maturity of the Unit Link insurance product?

    The benefits you receive on the maturity of a Unit Linked Insurance Plan (ULIP) can vary depending on the specific policy you choose and its terms. However, here are some of the common benefits you can expect:
    • Fund value accumulated over the policy term.

    • Maturity bonus as an additional reward for staying invested for the full term.

    • Loyalty Additions are bonus payouts for staying invested beyond a certain number of years.

    • Death benefit to your beneficiaries if you die before the maturity date

    • Tax benefits under Section 80C and Section 10(10D) of the IT Act, 1961. 

  • Can I get my money refunded in case of non-satisfaction with the policy?

    Whether you can get a refund on a ULIP due to non-satisfaction depends on several factors, including:
    • Free Look Period: During a free-look period, you can cancel the policy and get a full refund of the premium paid, minus any policy charges like stamp duty.

    • Beyond Free Look Period: After the free look period, refunds are typically not available due to non-satisfaction. However, some policies may offer surrender options with partial refunds after a certain period.

  • What is the Type 2 death benefit in ULIP?

    In a Unit Linked Insurance Plan (ULIP), a Type 2 death benefit refers to the payout your beneficiaries receive in case of your unfortunate demise during the policy term. 
    • Payout in Type 2 ULIP: Sum Assured + Fund Value

    • The payout consists of two components:

      • Sum Assured: This is a guaranteed fixed amount chosen at the policy inception and remains constant throughout the term. It acts as a life cover for your beneficiaries.

      • Fund Value: This is the market value of your units accumulated within the ULIP's investment fund. It fluctuates based on the performance of the chosen investment option.

  • How many types of charges are there in the ULIP plan?

    ULIP plans come with the following types of charges that can impact your investment returns:
    • Premium Allocation Charge (PAC)

    • Fund Management Charge (FMC)

    • Mortality Charge

    • Policy Administration Charge (PAC)

    • Fund Switching Charge

    • Partial Withdrawal Charge

  • What are the benefits of ULIP?

    The key benefits of a ULIP (Unit Linked Insurance Plan) are as follows:
    • Dual Benefits: Combining investment and insurance for a comprehensive financial solution.

    • Flexibility: Choose fund options, premium frequency, and premium amount.

    • Market-Linked Returns: Invest in the market-linked funds for higher returns based on market performance.

    • Switching Option: Easily switch between fund options to adapt to market conditions.

    • Long-Term Investment: Encourages wealth creation with a 5-year lock-in period.

    • Life Cover: Provides financial protection to your family in case of an unfortunate event.

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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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