Published on September 12th, 2022
Unit Linked Insurance Plans or ULIPs are basically investment cum insurance plans ruling the market these days.
But you know, these plans are further classified into two categories Type 1 ULIP and Type 2 ULIP.
Here in this blog, we will deal with the difference between Type 1 and Type 2 ULIP plans, their significance, and their drawbacks. But before considering the categories of ULIP plans, let us go through the general meaning of ULIP. You can also calculate your ULIP premium here.
What Is ULIP?
A ULIP is a multi-purpose investment option. It is a fusion of investment and insurance plans. As a policyholder, ULIP requires you to deposit regular premium investments. A part of this payment is utilized as life insurance plan, while the remaining is adjoined with other investment assets of the owner.
Advantages Of ULIP Plans:
Are you wondering about the right ULIP plan for you? Well, ULIP plans offer the following benefits:
- Market-linked returns.
- Protection with lifesaving plans.
- Tax benefits under section 80C.
What Is Type 1 ULIP?
Type 1 ULIP is the kind of ULIP that either provides the assured sum or fund value to the beneficiaries in case of the policyholder’s unfortunate demise.
The benefit is that whatever is higher is supplied to the beneficiaries out of the sum assured or fund value.
For consideration, imagine you have chosen a Type 1 ULIP plan with a sum assured of INR 30 lakhs and a fund value of INR 50 lakhs. Then, the disbursed value as death benefit will be INR 50 lakhs in this case.
Advantages Of Type 1 ULIP:
ULIP 1 helps you to generate high market-linked returns. It financially supports the beneficiaries with the highest possible payout. In Type 1 ULIP, the sum at risk keeps going down for insurance companies, with growth in fund value.
What is Type 2 ULIP?
If you invest in Type 2 ULIP, the fund value, along with the sum assured, is paid to the beneficiaries in case of the unfortunate demise of the policyholder.
In simple words, both fund types financially support the beneficially. For consideration, imagine you have chosen a Type 2 ULIP plan with a sum assured of INR 30 lakhs and a fund value of INR 50 lakhs. The total amount that will be provided to the beneficiary will be INR 80 lakhs.
Advantages Of Type 2 ULIP:
Type 2 ULIP is beneficial for policyholders looking for assured death benefits. In such cases, even when the fund value increases, the sum of the insurer at risk remains fixed each year.
What Is More Beneficial, Type 1 or Type 2 ULIP?
The benefit or advantages of the ULIP plan depends on their mortality charges. Type 1 is beneficial as the risk margin, in this case, keeps going down and eventually becomes zero at the end.
Thus, ensuring high returns to the beneficiaries. But there is no such change in risk in the case of Type 2 ULIP.
Therefore, it affects the final fund value of the plan. But it is advantageous at the same time. Type 2 ULIP plans are beneficial for those who want assured death benefits. See how you can avail maximum returns on ULIP plans.
Thus, it all depends on the financial needs and goals of the policyholder and his beneficiaries to choose the right ULIP plan for them.
Feature image: unsplash.com
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