What are Type 1 ULIP and Type 2 ULIP Plans?

What Is Type 1 ULIP?

What Is Type 2 ULIP?

What Are the Differences Between Type 1 and Type 2 ULIP Plans ?

The differences between type 1 and type 2 ULIP plans are as follows:

Point of Comparison

Type 1

Type 2

Benefit

Your nominee can get either the insurance or investment amount, whichever is higher.

Your nominee can get both the investment and insurance upon your demise.

Impact on Return

The returns are lower compared to Type 2 ULIP plans.

The returns are higher compared to the Type 1 ULIP plans.

Example

If the investment amount is ₹ 2 Lakhs and insurance amount is ₹ 3 Lakhs, your nominee will get the insurance money only.

If the investment amount is ₹ 2 Lakhs and insurance amount is ₹ 3 Lakhs, your nominee will get both the insurance and investment amounts.

Returns Calculation

From the above example, your beneficiary can get ₹ 3 Lakhs upon your death.

Considering the above example, your nominee can get ₹ 5 Lakhs upon raising a claim.

However, the premiums for Type 2 plans are slightly higher than Type 1, considering their returns. Additionally, there are several other advantages of purchasing a ULIP that you can benefit from immensely.

What Are the Advantages of Investing in ULIPs?

How to Invest in ULIPs?

FAQs on Things You Should Know About Type 1 ULIP and Type 2 ULIP :

How can you maximise your returns from ULIP? up-arrow

You can maximise your returns from ULIP by following the strategies below:

  • Invest in your ULIP funds for about 10 to 15 years for maximum returns.
  • Switch between equity and debt funds accordingly for better returns.
  • Avail tax benefits on the premiums of ULIP for maximising your savings and returns.

Can you get a tax benefit on ULIP premiums? up-arrow

Yes, you can get a tax benefit of up to ₹ 1.5 Lakhs on the premiums of both types of ULIP plans under Section 80C of the Income Tax Act. Additionally, you can also get a tax deduction on the claim amount under Section 10D.

What is the minimum lock-in period of ULIP? up-arrow

The minimum lock-in period is five years for both type 1 and type 2 ULIP plans.

What should you keep in mind before investing in ULIP? up-arrow

You should keep the following pointers in mind before investing in ULIP:

  • Compare the available ULIP plans stringently to select the most affordable one.
  • You can opt for ULIP if your financial goal involves wealth creation.
  • You will have to pay additional charges if you plan on withdrawing your funds before the lock-in period.
  • It involves elevated risks if the money is invested in equity funds, which are highly volatile and fluctuate with the money market.

What are the types of funds available for investment in ULIP? up-arrow

The different funds available for investment in ULIP are as follows:

  • Equity Funds: A part of the premium is invested in mutual funds. Since they are highly volatile, the risk associated is high.
  • Debt Funds: The money is invested in government and corporate bonds. Since they are not very volatile, the risk associated is low.
  • Balanced Funds: In this type, the money is partly invested in equity funds and partly in a debt fund to keep the risk in check and maximise your income.