Unit-linked insurance plans (ULIPs) can be classified in to various types depending on the parameter you are basing your differentiation on.
Thus, if you are differentiating it on the basis of the fund’s end use, it can be classified as:
- ULIPs for retirement planning: These ULIPs are for those customers who plan their retirement earnings by paying premiums while still being employed.
- ULIPs for child education: These ULIPs are directed towards your child’s education. The benefit of these ULIPs are easily spending money at your child’s key education milestones, along with ensuring your child’s education expenses are paid in case some unforeseen event takes place.
- ULIPs for wealth creation: These ULIPs are meant for wealth creation and they aid customers save and invest their money so that they can have a good corpus at any particular point of time.
- ULIPs for medical benefits: These are the ULIPs that help provide financial help during times of medical emergencies. A policyholder can also avail special riders for protection against major illnesses or critical illnesses under this ULIP.
Based on the death benefit provided to policyholder’s family/nominee, ULIPs can be differentiated as:
- Type I ULIP
In case of the policyholder’s death, this type of ULIP pays the nominee whichever amount between the fund value or the assured sum value is higher
- Type II ULIP
In case of the policyholder’s death, the type II ULIP plans pay the nominee the assured sum value plus the fund value.
Lastly, depending on the kind of funds ULIPs invest in, ULIPs can be differentiated as:
Equity funds: Equity funds are mutual funds that invest in stocks of various companies. The aim of equities is to make money grow. As investments made in stocks are subject to market risks, this makes investing in these funds high-risk investments.
Debt funds: These funds are generally invested in corporate bonds, debt funds, government securities and allied fixed income instruments. Debt fund’s secured and unsecured investment mix provides policyholders with moderate returns.
Balanced funds: As the name suggests, balanced funds combine high-risk equity and low-risk fixed interest instruments. By virtue of fixed interest component, the funds combine safety with capital appreciation (through the equity fund component). These funds generate guaranteed returns by maintaining a balance of stock and bond options. The bond investments help offset the risk taken by invetsing in equities. These funds are categorised as medium-risks.