Difference Between Type I and Type II of ULIP Plans

Unit-Linked Insurance Plan (ULIP) offers insurance and investments in one plan. That means, every policyholder has to pay a premium for one product and enjoy the benefit of two. One section of the premium goes into offering life cover, while the rest goes into bond, fund, or stock investments. Here are more details about the types of ULIP Plans.

Different kinds of ULIP Plans

A ULIP Plan is of two types, and they are:

Type I

In case a policyholder dies, under the Type I ULIP Plan, the insurer either pays the fund value of the plan or the entire sum assured to the nominee. The nominee will get whichever of the two is higher in terms of value. Thus, if the sum assured is INR 50 lakh and the fund value is INR 40 lakh, then the beneficiary will get the sum assured.

Type II

In this case, the paid amount is the total of the fund value and the sum assured. Thus, the premium is higher in these types of ULIP Plans due to the huge benefit received as the life coverage amount on the policyholder’s demise. If you take the same example as mentioned above, then a nominee will get INR 90 lakh in total (INR 50 lakh for fund value + INR 40 lakh for sum assured).

Difference between the two types of ULIP Plans

There are two major differences between the types of ULIP Plans mentioned above, and they are given below:

#1 Death benefits

For ULIP Type I, the fund value and sum assured are compared after the policyholder’s death, and the beneficiary gets the higher one among the two. For ULIP Type II, the beneficiaries get the fund value and the sum assured together.

#2 Sum at risk

For ULIP Type I, the ‘sum at risk’ for the insurer keeps decreasing because the fund value consistently grows every year. On the other hand, the ‘sum at risk’ is constant for an insurer in Type II because the insurer needs to pay the sum assured as a death benefit.

Which is the right ULIP Plan for you?

When deciding which ULIP Plan to go for, you’ll have to consider the following factors:

• If your risk appetite is big enough, then opt for plans that have equity and debt investments.
• Go for ULIPPlans that have minimal charges and maximum value. Such charges might involve premium allocation charges, fund management charges, and so on.

Since you now have a clear idea of the differences between the two types of ULIPs, you’ll be able to make informed decisions. Type II is the one for you if you want to focus on death benefits. But Type I is your best bet if you are looking for adequate coverage at a minimum premium.