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There are different types of ULIPs available in the market. But before investing in them you must have a clear idea about their advantages and disadvantages.
Here is checklist:
Type I ULIPs-
- You will get either the fund value or the sum assured (whichever is higher) upon the death of the policyholder during the term of the policy.
- After the new rules, longer lock-in period will ensure higher sum.
- In case of premature death and if the death benefit is higher than the fund value, the survivors will gain much more than in the past.
- Try to invest for longer periods.
- You may be offered a loyalty bonus by the insurer.
Buying Option- With cheaper costs, your selection of a Type I policy is now simpler. Since the changes in norms haven’t changed the long-term nature of ULIPs, experts suggest that you should invest in growth version with high exposure in equities. It can be followed by gradual de-risking by switching to low-risk variants in the last few years of the plan.
Type II ULIPs-
- Experts believe that this is the best option among all ULIP categories.
- These ULIPs continue to provide both sum assured and the fund value as death benefit.
- However this ULIP is costlier in comparison to others.
Buying Option – With the increase in the mandatory life coverage amount, this double benefit ULIP category becomes even more attractive as it has a nice balance of life cover and investment.
NAV Guaranteed Plans-
- These plans continue to give the highest NAV recorded during a specific term of the policy.
- Some of the new offerings have also started guaranteeing the minimum NAV on maturity.
- Few others offer a certain fixed return over and above the highest NAV recorded.
Buying Option- Guarantees always come at a cost. In NAV guarantee plans’ fund managers have to invest more in debt which limits the upside in investing in other options with equity exposures. So such products prevent you from getting the real long-term advantage of equity investing, a distinct disadvantage in a long term product like ULIPs. These plans are costlier than regular Ulips as they are outside IRDA’s cost cap. Expert’s advice to keep a distance from these plans.
Children’s ULIPs Plans-
- A typical child ULIP is a kind of type II ULIP which offers the sum assured as well as the maturity corpus to the beneficiary.
- If the parents die during the term of the policy the beneficiary or the child gets the sum assured. You will also avail ‘waiver of premium’ benefit. It means that in the case of untimely death of the parent future premiums are waived off and paid by the insurance company.
Buying Option- It is good for an investor who doesn’t have any investment discipline. But make sure it is not very expensive. Also keep in mind that a ULIP has a short-term disadvantage and works only over the long term. So buy a policy when your child is very young.
Category: Pension ULIPs-
- The new norms have made dramatic changes in unit linked pension plans.
- Unlike in the past, where there was no obligation to offer a guaranteed return, now minimum of 4.5 per cent guaranteed return at maturity to the policyholder is mandatory.
- This would limit the equity exposure by insurers in their pension plans.
Buying Option- A guaranteed return policy would require investment in fixed income instruments. But in the 8-9% inflation scenario, fixed incomes are not a viable option especially for pension products. Besides, the scope of getting the kind of returns which were possible through growth options of ULIPs is also limited here. So ULPPs can’t be your only retirement investment. Pension ULIP is a good option only for those who are above 50 and want less risk. But if you are in 20s and 30s avoid it completely.
Do’t mix insurance with investment-
But before going for this option you must be very clear that a ULIP is more an investment option rather than an insurance product. Only a long term investor should go for this option because even after new guidelines it is an expensive choice.
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