Types of Unit Linked Insurance Plans (ULIPs)
Understand the different types of ULIPs and find out when you should invest to achieve your specific goals
Why choose ULIPs for Retirement planning
Retirement is the end of work life and the beginning of your golden years. This is the time for you to enjoy your life, free from responsibilities and pursue your long lost interests. However, to make this dream a reality, you must start planning early for your retirement and consider investing in the right ULIP. Here are some reasons why you should start planning for your retirement now:
- Increasing retirement years: With average life expectancy increasing in India, it has become even more important to plan for a longer retirement. Life expectancy figures indicate how long an average individual lives. In India, the average life expectancy of a person aged 60 is 17.5* years. This means that an average Indian lives up to the age of 77.5. You need to start planning in advance to maintain your lifestyle and take care of other expenses for such a long duration.
*Abridged Life Tables - 2003-07 to 2006-10, as per the Ministry of Statistics and Programme Implementation (MOSPI) report 'Situation analysis of the elderly in India'
- Medical expenses: A major worry with increasing age is unforeseen medical expenses. Rising at 15-17%** every year, such medical costs can be difficult to manage unless you plan for them in advance.
**Source: Outlook Money
- Financial independence after retirement: You would like to live your life on your terms after your retirement. However, more than 65%* individuals above the age of 60 depend on others for their daily expenses. This shows how important it is to plan for your retirement and ensure your financial independence.
*As per the MOSPI report 'Situation analysis of the elderly in India'
How Unit Linked Retirement Plans Work
Retirement plans from ICICI Prudential Life Insurance ensure that regular savings grow over a period of time to provide a regular income after retirement. Usually, all Retirement plans have two major phases:
- The accumulation phase, where you save and invest during your working years, to build a retirement kitty or corpus
- The withdrawal phase, where you draw the benefits of your investments in the form of regular pay-outs, called ‘Annuity’.
In a typical Retirement plan, you have the flexibility to make either a lump sum payment or pay the premiums over regular intervals, during your working years. These payments are then invested in funds of your choice. You can opt to receive the annuity at any time after the vesting age. Vesting age is the age at which you become eligible to receive the pension money. You can choose the vesting age at the beginning of your policy.
Most of the Unit Linked Retirement plans come with a wide range of annuity options. One of these options is the freedom to structure your post-retirement pay-outs. Also, at vesting age you are allowed to withdraw up to 33% of your accumulated kitty. This withdrawal is called commutation and is completely tax-free.
Why choose ULIPs for retirement savings?
In a Unit Linked Retirement plan, you have the potential to earn higher returns with market-linked (equity, debt and balanced funds) investments. This helps you create a retirement kitty, for spending your golden years on your own terms.
For example, if you start saving ₹1,00,000 every year, for 10 years, you would have saved ₹10,00,000. This means that you will have a retirement kitty of ₹19,08,373 if your money grows at 4% per annum. Similarly, your savings would be ₹50,28,450 if your money grows at 8% per annum.
*The above mentioned illustration is for ICICI Pru Easy Retirement (UIN: 105L133V01) with 100% investment in Easy Retirement Balanced Fund (SFIN: ULIF 132 02/11/12 ERBF 105) as the chosen fund.
This shows that with a Unit Linked Retirement plan you have the potential to earn high returns and ensure a financially independent retirement.
If you are looking to create wealth and also enjoy the benefit of a Life Cover, ULIPs are the right instruments for you. You get the flexibility of using these plans to fund any of your long-term financial goals such as buying a house or funding your children's education. The added element of Life Cover makes a ULIP an all-round financial investment option.
Types of wealth creation ULIPs
- One Pay - Regular pay plans
Depending upon your needs and premium paying capacity, you can choose from either One-Pay Plans or Regular Pay Plans. In a One-pay plan, you need to pay the premium only once during the entire term of the policy. With the regular-pay plan you can pay the premium throughout the policy term, at a frequency you are comfortable with (yearly, half-yearly or monthly).
- Guarantee – Non-guarantee plans
Some wealth creation ULIPs also offer guaranteed benefits. These ULIPs are Insurance + Investment options that let you enjoy the potential of better returns over a long-term, without taking any market risk. In these plans you get a limited exposure to equity funds and are ideal if your goal is savings.
On the other hand, non-guarantee plans come with a built-in range of fund options to choose from. Here, you can invest your money as per your choice of funds. You can get a higher exposure to equity funds, and hence, potential for higher long-term growth. These plans are ideal if your goal is wealth creation.
- Life Stage based – Non-Life Stage based plans
Life Stage based ULIPs work on the fact that your priorities differ at different life stages and hence, distribute your money across equity and debt funds. The initial allocation is decided as per your age, with a higher proportion in equity and lower in debt. As your age increases, the plan gradually transfers your money from equity to debt to preserve the wealth that you have acquired. Such a strategy ensures that the asset allocation matches your age and changing financial needs at all times.
One of the most important responsibilities that you have as a parent is to ensure that your children get the best possible education. You would also like them to experience various co-curricular activities like dancing, sports, painting and much more, for their all-round development.
As a parent, you would like to ensure that your children get the best and their future is not affected due to rising costs or an unfortunate event.
ULIPs offer you a wide range of benefits for helping you secure your children’s future. Apart from the benefits mentioned above, ULIPs also offer you the following benefits:
- After staying invested for at least 5 years, you can withdraw a part of your accumulated wealth. You can use this amount to fund important education milestones of your children such as, 10th, 12th and graduation.
- In the event of an unfortunate death of the policyholder, ULIPs provide a fixed lump sum which can help your family to manage the immediate expenses.
- In addition to this, the life insurance company will pay your future premiums so that your savings keep increasing. At the end of the policy term, a lump sum will either be paid to your child (if they are older than 18 years) or the appointee^^. This amount will help your child achieve his/her dreams.
^^An appointee is the person who receives the Life Cover amount on behalf of your children if child’s age is less than 18 years.
While there are different ULIPs designed specifically for certain goals, you can purchase the one that meets your unique requirements. We, at ICICI Prudential Life Insurance offer a wide range of ULIPs that will help you achieve your dreams.