Unit Linked Insurance Plan, also known as ULIP, is a popular type of insurance plan where you get to enjoy the cover benefits while growing your initial investment with the course of time. The premium that you pay towards this plan is divided into two segments- one part focuses on providing you with life coverage, and the other part is used to invest in money market tools. There are different types of ULIPs plan that you can take, and below we are discussing the same:
- Equity Funds:
Equity funds are also referred to as bond funds. In this type of ULIP, your money is invested in shares of stock of an enterprise. The fund manager researches to identify the most profitable stock option for you. Depending on the company’s market capitalization, you have the right to choose the company you invest your money in. Moreover, depending on the market value of the stock, there are different equity funds include micro-cap funds, mid-cap funds, and large-cap funds.
- Bond Funds:
Bond funds are types of ULIPs where your money is invested in bonds such as government bonds, corporate bonds, fixed income bonds, etc. Bonds funds are a medium risk, and the return you receive from them is also a low-medium level.
- Balanced Funds:
Balanced funds are a combination of debts and equity. In this type of ULIPs, a portion of your investment is put to high-risk instruments such as equities, whereas the rest of your money placed on fixed interest medium where the risk is low.
- Cash Funds:
If you are looking for a low-risk ULIP investment, then cash funds are an ideal option for you. In cash funds, your money is invested in the money market tools such as bank accounts, cash deposit, market funds, etc. This allows you to get a fixed return without incurring much risk.
What to Consider While Taking Out ULIPs?
ULIP is an effective insurance plan that provides insured with dual benefits. However, similar to any other insurance, it is vulnerable to risk; therefore, it is important to make a well-thought-out decision. Following are certain key factors that you should consider before purchasing a ULIP plan:
- It is important to consider your personal financial goals before you take out ULIP. If your objective is to maximize your wealth and save money for retirement, then you can significantly benefit from this plan.
- Once you have decided what type of ULIP plan is best suited for you, make sure you do your market research well. Different providers have different plans and comparing them well allow you to get the best deal. Look out for background expenses, ULIP performance, premium payments, nature of funds, etc.
- ULIPs typically have a lock-in period of 5 years. If you surrender your plan within this duration, your insurance cover will be ceased.
- The risk factors in ULIP are high as opposed to its counterpart ELSS and other plans; make sure you are well aware of them prior to signing the agreement.
ULIPs are powerful investment tools that help you avail dual benefits. However, it is important to scrutinize every element associated with it in order to make a well-informed and profitable decision.