Type I vs Type II ULIP Plans

Introduction

Mutual fund investments have risen in popularity as investors can get good value from its inherent benefits. Insurance, on the other hand, provides financial security in times of need. Hence, the value of insurance cannot be undermined.

 

But, what if the two were combined in a single investment?

 

Unit Linked Insurance Plans (ULIPs) do exactly that for you. ULIP Plans offer an investor the dual benefit of investments and insurance through a single source of investment. A part of the ULIP amount goes into providing a life insurance cover and the rest is invested in stocks, bonds, or funds (equity, debt or hybrid) which help investors benefit from market-linked returns.

Types of ULIP Plans

Type I

Under Type I ULIP plans, if the policyholder dies, the insurance provider either pays the sum assured amount or the fund value of the ULIP plan to the nominee(s). Whichever of the two is higher in value shall be disbursed to the nominee(s). So, if your sum assured is ₹40 Lakh and fund value is ₹50 Lakh, your beneficiary shall receive the fund value.

 

Type II

In such a case, the amount paid is the total of the sum assured and the fund value. The premium is thus higher in such types of ULIPs because of the enormous benefit in terms of the life cover amount on the death of the policyholder. If we consider the same example given above, the nominee would receive ₹90 lakh (₹40 lakh sum assured + ₹50 lakh fund value).

Difference Between Type I and Type II ULIP Plans

SInce ULIPs are classified as Type I and Type II plans, let us understand the differences between these two with examples:

Which ULIP Plan Should you Choose?

Here are the factors that you need to consider while purchasing ULIPs:

 

• If you have a bigger risk appetite, go for plans that invest in equities, otherwise go for debt investing plans that are the best for you.

• If you are young or have taken loans, it is better to invest in a ULIP offering a sum assured that is sufficient to pay off your liabilities and take care of your family after your death.

• Opt for a ULIP that comes with maximum value and minimal charges. These charges might include fund management charges, premium allocation charges, etc.

Now that you know the difference between Type 1 and Type 2 ULIP plans, you can make an informed decision. If you want to make the most of the death benefit, Type 2 is ideal for you. However, if you want sufficient coverage at minimal premium, Type 1 would be your choice. At Bajaj Markets, we offer a wide range of ULIP plans that can be customised as per your specific needs. With equity, debt, and the combination of both, you have the comfort of choosing funds that would help you achieve your financial goals.