ULIP is known for its dual approach, which offers both growth & financial protection, due to its combination of investment & insurance. One part of the premium is diverted towards life coverage, & the remaining part is invested towards market-linked funds. This plan offers flexibility in paying premiums & allocation of funds in different asset classes, such as debt, equity, or both. While selecting among the different types of ULIP plans available, an investor should assess the desired returns on the basis of risk tolerance level & investment horizon.
Now that we know What is ULIP, let us now understand how it can be classified into multiple types depending on premium payment, purpose, & fund options, which are as mentioned below:
- Classification by Premium Payment
- Single Premium ULIPs: One lump sum payment for the complete policy tenure
- Regular Premium ULIPs: Includes regular premium payment
- Classification by Purpose
- For Wealth Creation: Invests in equity funds to achieve growth
- For Retirement: Helps accumulate corpus funds for retirement.
- For Child Plans: To meet the future requirements of children.
- Classification by Fund Options
- Equity ULIPs: It best suits those investors who can accept risk, as it includes investing in equity.
- Debt ULIPs: They include low risk while providing stable returns by investing in debt funds.
- Balanced ULIPs: They offer medium risk by investing in both debt & equity, hence creating a balance.
- Classification by Flexibility
- Type I ULIP: The beneficiaries will receive the higher of the fund value or the sum assured
- Type II ULIP: The beneficiaries will receive the total of the fund value & the sum assured.
In this article, we will be discussing the single-premium & regular-premium ULIPs in detail.
What is a Single Premium ULIP?
Under this plan, premiums are paid in a lump sum. This plan requires a one-time investment to reduce administrative costs & is considered flexible. This plan offers you a dual benefit of financial security & investment. This plan best suits those investors who can make huge investments at one go & want to remain stress-free throughout the policy tenure.
What is a Regular Premium ULIP?
This plan requires a small but regular payment of premium, i.e. monthly or annually on a regular basis. This plan best suits those who want to invest a smaller amount throughout the policy tenure without any financial burden.
Difference Between Single Premium & Regular Premium ULIPs
Before finalising the Best ULIP Plan in India, it is important to understand the differences between single & regular premium ULIPs. This is because both plans affect the type of investment made & returns in the long run. Let us now understand the differences between the two plans:
| Point of Difference | Single Premium ULIPs | Regular Premium ULIPs |
| Convenience | It is considered to be more convenient as there are no delays, no missed payments, & the payment has already been made in a lump sum. | It includes hassles in making payments, as one has to be focused on the due dates. |
| Affordability | This plan is not at all affordable as it requires a huge amount of funds to be paid in one lump sum. | This plan is quite an affordable one, as it includes smaller amounts to be paid regularly. |
| Tax Benefits | This plan entitles you to avail a benefit of tax on the amount of premium paid, maximum up to INR 5 lakhs u/s 80C. | This plan entitles you to tax benefits till maturity. |
| Premium Amount & Frequency | Due to them being long-term plans, the amount of investment to be made is generally higher. | Under this plan, a smaller amount is to be paid regularly till maturity. |
| Risk | This plan includes high risk as a lump sum amount is being deposited initially, leaving behind the risks of a volatile market scenario. | This plan includes less risk as the investment amount is scattered throughout the policy tenure & has the ability to benefit from the averaging cost of market fluctuations. |
| Customisability | As it includes a single lump sum payment, it may not include an option to customise the plan further in terms of adding riders. | It allows adding critical riders to enhance the plan at an additional cost. |
| Maximum Returns | This plan offers maximum returns. | May get minimum returns due to missed premium payments. |
Pros & Cons of Single & Regular Premium Plans
Provided are the pros & cons of single & regular premium plans:
- Single Premium ULIPs
Pros:
- It includes a single lump sum payment, hence hassle-free & no missed payments.
- No lapse of plan because of non-payment.
- It best suits those who have surplus funds.
- Chances to avail good discounts.
Cons:
- The tax benefit can be availed in the initial year of payment only.
- It is less flexible in terms of adding riders or increasing coverage.
- Exposed to the volatility of the market.
- Regular Premium ULIPs
Pros:
- It is quite cheaper as it spreads the premium cost over the years.
- Premium paid is eligible for a tax deduction u/s 80C.
- The rupee average cost technique helps mitigate the risk.
- It is flexible in terms of adding riders or increasing coverage.
Cons:
- It includes regularity in terms of making premium payments, as any missed payment can lead to lapse of the plan.
What to Select – Single or Regular Premium Plan?
To choose a plan between the two, one should consider the financial position, need for insurance, & style of investment.
One should opt for a single-premium ULIP if:
- You have a lump sum amount to invest.
- You want to make a one-time investment.
- You want to make it hassle-free by avoiding the risk of missed payments.
One should opt for a Regular premium ULIP if:
- You want to distribute the premium cost throughout the policy tenure.
- You want to increase the tax benefits.
- You want flexibility in terms of adding riders.
- You want to have an advantage from rupee cost averaging.
Conclusion
Both the single & regular premium ULIPs come with a dual benefit of insurance & investment. One should choose a plan between the two depending on the risk tolerance level, budget, cash flow, tax planning requirements, convenience, etc. Hence, it is advised to choose a plan that well aligns with your future financial goals.
Leave a Reply