Know when to choose between a Type-I and Type-II ULIP
As an investor, it is very important to invest in the right of the type of policy for long term gains. Investing in a policy that suits your needs allows not only the security but also the fulfillment of your goals. One such plan which provides the dual benefits of protection and growth of your invested funds is the Unit Linked Insurance Plan (ULIP). Additionally, it also promises insurance and investment component under a single roof.
Before you decide to opt for a ULIP, consider all its factors of investments like the classification of ULIPs, types of funds, benefits, and so forth. Out of all these factors, investment based on the classification of ULIPs is inevitable. The classification of this policy is typically done in two forms: Type I and Type II, respectively. In order to understand the details of both these forms, keep reading to find out more:
Classification of ULIPs:
1. Type I
Under type, I of the ULIP Plan, the nominee of the policyholder receives either the sum assured or the fund value, whichever is higher. When the policyholder pays his premium on a timely basis, the risk implied on this policy eventually decreases. After the accumulation of your premium, the ULIP plans returns maximizes over the due course.
For instance, Raj has invested in Type I of the ULIP Policy. He has opted for a sum assured of Rs. 5 Lakhs for a premium of Rs. 50,000. At the event of the death of Raj, his nominee would receive a sum assured of Rs. 5 lakhs if the fund value is lesser. If the fund value increases than the sum assured in the due course, then the death benefit will be accumulated in that fund.
2. Type II
If you’re looking forward to receiving the benefits of sum assured and fund value, at the same time, then invest in Type II of ULIPs. A majority of investors believe in the investment of Type II of ULIPs since the financial benefit is extra. The death benefit received by the nominee of the policyholder is equal to the sum assured and the fund value. Additionally, this type of ULIP might consider a maturity benefit as the risk of death increases as you grow older.
For instance, Raj has opted for a sum assured of Rs. 5,00,000 and the fund value is Rs. 4,00,000. Then, the total benefit will be Rs. 9,00,000 (i.e. 4,00,000+ 5,00,000). Due to benefits of both, sum assured and fund value together, Raj prefers type II of ULIPs in order to gain optimum benefits.
Since an investment in a ULIP Plan is an important one, the investor should always take considerations and make the decision of investment thoughtfully. This decision of investment should be ideally based on your money goals as well as yours and your family’s financial priorities. Therefore, see to it that you understand all the type of variants of ULIPs in order to stay invested for a longer period of time.
With the help of these types, your investment decision in a ULIP insurance will never go wrong. If you’re looking forward to gaining the best out of the death benefit, then type II of ULIPs is your calling. If you’re solely looking for generating wealth, then Type I will surely work in your favor. Personally speaking, it is always advisable to invest in Type II of ULIPs as it is considered as a better tool for risk transfer.
