Unit-Linked Insurance Plan (ULIP) is one of the most beneficial investment options available in the market today. So, what is ULIP? ULIP is an investment vehicle through which, investors can put their money across a wide spectrum of investment instruments such as equities, bonds, and mutual funds. It is a two-in-one plan, which offers holistic protection to investors while allowing wealth creation. The best part about ULIPs that they can be customized, according to your requirements and life stage.
ULIPs offer a number of benefits to the investors. If you have the question in mind that “why should I invest in a ULIP”, listed below are a few main reasons.
- Flexibility
ULIPs offer flexibility in many ways. You can switch between funds if you feel it is not providing you the desired growth. You also have the option of making partial withdrawals through your tenure. There is also an opportunity for investors to make a one-time addition to their premiums or to top-up in order to increase the amount invested at any time.
- Transparency
ULIPs follow a transparent structure. They enable you to know the percentage of premium invested along with the regular hidden charges. As an investor, you are also privy to information about the value and number of fund units that you hold. In addition, you can also choose to track your portfolio online.
- You can choose your fund option
When you choose your ULIP, you also have the option to choose your fund. If you have the appetite for higher risk and want to gain higher returns, you can opt for equity funds. On the other hand, if you are satisfied with the available returns and focus more on the stability, then you can choose debt funds. Some ULIPs also have the option to invest in hybrid funds to suit the risk appetite of the investor.
Types of ULIPs for wealth creation
If you are seeking long-term wealth creation alongside a life cover, a ULIP is the best bet for you in today’s market scenario. You can leverage the ULIPs to its maximum potential to achieve your various life goals such as children’s education, buying a house, or a long vacation abroad, among others. They not only empower you to build your wealth but also give you the added benefit of life insurance cover.
- Regular pay plans/ one-pay plan
Based on your requirement and premium paying capacity, you can choose ‘one-pay plan’ or ‘regular pay plan’. If you opt for the one-pay mode, you need to pay the entire premium at once. However, if you opt for the regular pay mode, you can pay the premium throughout the tenure of the life insurance, which could be monthly, quarterly, or annually, as per your comfort level.
- Guarantee/non-guarantee plans
Certain wealth creation ULIPs offer guaranteed or assured benefits. These ULIPs are a combination of insurance and investment, which allow you to reap the benefit of market-linked returns. These plans are ideal if your risk appetite is slightly lower and your goal is regular savings. These plans have limited exposure to equity and ensure the protection of capital.
The non-guarantee ULIPs offer you a plethora of funds to choose from. You can take a pick from the available funds based on your priorities. Since these funds have a higher exposure to equities, there is huge upside potential, which means this is ideal for wealth creation. However, because these funds are directly related to the markets, the returns cannot be assured.
- Life stage based plans
The ULIPs based on life stage move along with your journey in life. They are modelled on the principle that your priorities change with each stage in life and this is how the money is allocated amongst equity and debt. During the initial allocation, a larger portion is invested in equity as compared to debt. This is because your investment in equity should be more when you are younger and this exposure reduces with your age. The investments are transferred from equities to debt to protect your capital. The main idea behind life stage based equities is to ensure that the asset allocation strategy is designed to match your changing financial needs.
- ULIPs for retirement
A ULIP has the potential to grow your wealth since it invests in a balanced way across equities and debt. This is an ideal bet to plan your retirement finances, as a disciplined savings habit will lead you to reap ULIP benefits in the form of regular returns after a stipulated period.
In a regular retirement plan, you have the option of either paying a lump sum or making regular payment during your active employment years. These payments are invested in funds as per your preference. At the beginning of the policy application process, you are required to choose a vesting age. This is the age from when you are eligible to receive the pension amount. You can choose to receive the annuities or regular payments any time after the vesting age.
- ULIPs for children’s education
As a parent, your biggest responsibility is to provide the finest education to your children. However, you know that the world is full of uncertainties and hidden risks. Naturally, you would not want to impact your children’s education at any cost.
Listed below are a few advantages of this plan.
- If you stay invested for a minimum period of five years, you are allowed to withdraw a part of your accumulated corpus. This amount will be a great support in financing the higher education of your children after the 10th or 12th standard. It can also be used for professional education from their undergraduate years.
- If there is an unfortunate death of one of the policyholders, the ULIPs pay a lump sum to the family members to take care of the immediate commitments and financial emergency, which the family is undergoing.
As you have an insight on the various types of ULIPs exclusively designed for certain life goals, you may purchase the one as per your needs and requirements.
