Ch. 4: Different Types of ULIP Plans

Now that you're clear on what a Unit Linked Insurance Policy is and why you should buy one, let's look at the variants of ULIPs available in the market.

Today, insurance companies sell several types of Unit Linked Insurance Policies. These ULIPs differ based on the premium payment term, investment objective, etc. Further, some ULIPs are specifically designed to secure your child's future, while others help you plan for your retirement. And so on.

Without any further ado, let's dive right into the types of ULIPs offered by insurers!

Single-premium ULIPs
Under this type, you’re required to pay the entire premium as a lump sum amount, in one go. You need to pay the premium at the time of purchase, and then, you can enjoy the benefits for the policy duration you choose.

For instance, Amara buys a single-premium ULIP for a duration of 15 years. So, she’ll have to make the entire premium payment at the time of buying the policy. And, she can enjoy the policy coverage till the end of 15 years.

As the name suggests, here, you’ll have to pay the premiums regularly throughout the policy tenure. This plan provides you the option of paying the premiums monthly, quarterly, semi-annually, or annually.

If you think you’ll be able to pay large amounts every year, you can choose the annual premium payment option. If not, you can choose the monthly, quarterly, or semi-annual payment option.

With a limited premium ULIP, you can make your premium payment term shorter. Under this type, you're required to pay the premiums for a limited number of years, say, 5 years, 10 years, 15 years, etc. So, you can complete your premium payments in faster and larger instalments, and get the premium paying liability off your chest quickly.

For instance, Jayesh buys a Limited Premium ULIP for a duration of 25 years. He chooses to finish paying his premiums in 10 years. This means that he can complete all his premium payments in the next 10 years and enjoy the coverage for the rest of the duration.

Life Stage based ULIPs operate on the assumption that your risk-taking capacity decreases as you grow older. The initial allocation of money under the fund options is decided based on your age. In the initial years, a higher proportion of your investments goes towards equity rather than debt.

Then, as you grow old, the policy gradually increases the proportion of investments in debt instruments and decreases the proportion of investments in equity instruments. This lowers the risk and volatility of returns, and in turn, preserves the wealth you've acquired.

As a parent, one of your major duties is to secure your child's future by providing them assured financial assistance to fulfil all their aspirations. However, it might be challenging to do so given the rising cost of inflation, education, and other expenses. In order to make sure your child doesn't compromise on their dreams, you'll need to build a solid fund. Child ULIPs can help you do just that.

A child ULIP can help secure your child’s financial future and ensure all their dreams are taken care of. It allows you to invest in a diverse portfolio that will help you accumulate sufficient funds for covering various milestones, like your child's education, wedding, etc. In case you pass away in the middle of the policy duration, the insurer will waive off all future premiums under the Child ULIP. The policy, however, will remain active until the end of the tenure, and all benefits, too, will remain intact.

This policy is specifically designed for retirement purposes. The premiums you pay under a ULIP retirement plan are accumulated as an investment until the time of your retirement.

When you retire, a part amount will be paid to you. The insurance company will invest the remaining amount in an annuity scheme. And, the returns from the annuity scheme will be paid to you in the form of pensions - either monthly, quarterly, semi-annually, or annually as per your choice.

So, these are the several types of Unit Linked Insurance Plans available in the market today. Based on your financial goals, you can invest in a type of ULIP that suits your needs the best. Before you go ahead and make the purchase, ensure you're completely aware of how the plan works - to avoid any issues later on. Read on!