What is a Growth Plan?
A Growth plan is also known as a Unit Linked Insurance Plan, or ULIP. It offers the dual benefits of having an insurance as well as an investment component. ULIPs are typically market linked plans which offer the best components of both insurance and investment to the insured. ULIPs offer a chance to plan for long term growth while getting an insurance cover as well. Moreover, the ULIPs available these days have become comparable in cost to mutual funds.
What are the benefits of buying a Growth Plan?
ULIPs are most commonly contrasted with Mutual funds since they offer an investment component quite similar to Mutual funds. However, ULIPs offer some significant advantages over mutual funds. ULIPs offer an insurance benefit along with the investment component. This means that death benefits are paid to the insured’s family in the unfortunate case of his demise during the policy term. Many company offer loyalty benefits if a long term ULIP is purchased. The investment options in ULIPs are quite flexible – the insured can decide whether to invest in debt or equity based on their risk appetite. This way, the insured can hedge against risk and this makes ULIPs a less risky investment. Mutual funds are primarily aimed at wealth creation in the short term and offer better liquidity options in shorter time frames. They are more suitable to the short term investor, while ULIPs are a much longer term investment.
What are the different types of Growth Plans?
ULIPs are classified on three different basis. These classifications take into account the type of benefits paid out by the scheme, the purpose of the scheme and the type of investment instrument of the scheme. ULIPs are quite diverse and specialized based on all of these parameters and different schemes offer quite different benefits based on their purpose.
1. Based on Death benefits
A. Type I ULIP:
In these policy types, if the insured dies during the policy term, the beneficiaries of the policy are paid either the sum assured by the policy or the investment fund amount, whichever is higher.
B. Type II ULIP:
These are the more preferred type of ULIP. In these both the death benefit (sum assured) and investment amount are paid to the beneficiaries in the event of the death of the insured.
2. Based on purpose
A. Wealth Collection:
These plans are tailored to accumulate and grow the premiums invested. This ensures that the insured gets a large corpus amount on policy maturity for investment purposes. These are recommended for people early out in life looking to get a good investment amount a few years down the line. The corpus funds can be used some future goal.
B. Retirement Planning:
These are plans where the insured pays premiums throughout their employed life in order to reap the policy benefits on retirement. The annuity payments in these plans are quite flexible.
C. Children’s education:
These policies are mainly meant to provide a secure and financially stable future to your children. In these policy, parts of the corpus fund are paid out at preset milestone years to fund a phase of your child’s life, such as higher education or marriage.
D. Medical benefits:
These plans are basically meant to cover the costs of a medical emergency. They carry a number of standard benefits of a common health insurance plans.
3. Based on investment type
A. Equity schemes:
These policy schemes are preferred by those who have a higher risk appetite. The investment component is primarily invested in equity funds. The risk profile here is higher to due an active link to the volatility of the stock market. The returns from these policies are typically expected to be higher, based on the performance of the market.
B. Debt schemes:
In these policy schemes, the investment is done in more stable debt instruments such as bonds. Here, the return on investment is guaranteed, but the return is also quite low. These are perfect for the investor who wants a stable, assured return with low a risk profile.
C. Balanced schemes:
These are the most preferred investment options in ULIP schemes. The investment is balanced between equity and debt instruments, which ensures that the insured gets a fixed, stable return with the possibility of a handsome market linked return. The risk is spread out more, making this an attractive option.
Things to consider when buying a Growth Plan?
There are a number of charges associated with a ULIP. You should take care to know the charges on your policy.
1. Fund management charges:
These are the costs borne by the insured for the investment management of the policy by the insurer. The fee is charged prior to calculation of net asset value.
2. Premium allocation charges:
These are charges against the cost incurred by the insurer in setting up the policy including the underwriting costs.
3. Administration charges:
These are regularly deducted costs for managing the insurance policy.
4. Mortality charges:
These costs are deducted to provide life cover to the insured and depend on age and lifestyle of the policyholder.
5. Surrender charges:
In case you prematurely withdraw funds from the policy, these charges are enforced as a percentage of the fund amount or the premium.
6. Discontinuation charges:
If the policyholder discontinues the policy before the lock in period is over, these charges are levied.
7. Fund switching charges:
In case you wish to switch your insurance provider, the company charges a switching fee.
In addition to knowing the full extent of the charges as described above, you should carefully see the performance of the ULIPs investment choices and decide on the best policy for your risk appetite.
When is the right time to buy a Growth Plan?
A Unit Linked Insurance Plan policy works best on a long term basis. The flexibility offered by the plan means that you can change your investment options based on risk appetite over the years. This will help to balance out the ups and downs of the market over the years and give you a safe, sizeable return on investment. Therefore it is always advised to invest in ULIPs early on. You can increase your fund amount through top-up plans and even get the option to withdraw a part of your funds down the line without dissolving the policy.
For a genuine and transparent advice on your Wealth Growth Plan, call our advisors on 9948 661 204 and get a Free Consultation for the first time. Alternatively, submit our enquiry form and one of our Financial Advisors will get back to you at your convenience.
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