Which Type Of Ulip Is Right For Meeting Your Long Term Goals

Read on to find out.

- Manish Jain

 

Unit-linked insurance plan (Ulip), an insurance product that bundles protection and savings has undergone several structural changes and is a revamped product in its new avatar. Unlike in the past, where premiums could have been discontinued after a certain period say 3 or 5 years, the current version requires premiums to be paid till maturity, unless you choose limited premium payment period. Hence, saving through Ulips becomes a forced savings and requires payments each year for the policy to continue. Also, unlike in the past, now majority of charges have become standardised and spread over the first five years of the policy.

If you are buying a Ulip, part of your premium goes towards meeting mortality charges, that is, the cost of insuring your life. The remaining amount, after deducting the insurer’s costs, is invested in different fund options like shares, debt or a mix of both. Net of charges let the premiums be invested in the all-equity fund option. Although there’s no exit cost after five years across all Ulips, it’s bad to do so. Review their performance after five years and exit only if returns are way below the benchmark. Ulip funds generally deliver returns in tandem with the markets. Run it longer till your pre-decided maturity. Use the feature of partial withdrawals during the term of policy to fund intermittent needs such as meeting petty expenses for kids or even education and marriage needs.

Types of Ulips

Based on the death benefit, Ulips can be divided into two types. Upon death during the term of the policy, Type I will give you the higher of fund value or sum assured, while Type II, will give both the fund value and the sum assured. However, the fund values will be different in the two cases.

The Dilemma