Type I and Type II ULIP Plans

Mutual fund investments have become a popular investment avenue as investors can get good value from its inherent benefits. Insurance on the other hand, provides financial security in 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.

In this article, we will tell you what ULIPs actually are and the different types of ULIPs that you can invest in. Apart from those types, we also tell you about what factors to keep in mind while purchasing ULIP plans.

What Is ULIP?

A ULIP is a market linked insurance product wherein a part of the investment made by the policyholder goes in as life insurance premium and rest is invested in market linked avenues like mutual funds. The type of mutual fund to be invested in depends on the risk appetite of the customer.

How Does a ULIP Work?

The insurer pools in money from numerous policyholders and invests them in the types of funds chosen by them. While some investors prefer investing their funds into the high risk markets with a view to maximize their investment, others like to play safe and thus invest in debt instruments.

Type I and Type II ULIP plans – The Difference

ULIPs are classified as type I and type II plans. Let us understand the difference between these two with examples:

Type I

In this type, the insurance company pays the fund value or the sum assured, whichever is higher to the nominee of the insured, in the event of the death of the insured person. Suppose, a person has paid premium for 8 years and the fund value has grown to 30 lacs. So, at a sum assured of 50 lacs, the nominee will get 50 lacs (as it is the higher amount out of the two). In type I ULIPs, the sum-at-risk amount (the amount insurance company has to pay from its own pocket) keeps on decreasing with time as fund value grows.

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 type 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 in this case would receive 80 lacs (50 lacs sum assured + 30 lacs fund value). In this type of ULIP, the sum-at-risk always remains constant.

ULIP Calculator

Online insurance portals offer a ULIP calculator which can be used to find out the amount that would be received in the form of sum assured. This calculator takes in consideration the amount of investment and its frequency, the duration of investment, etc. which are then used to calculate the value of your investment.

List of Best ULIPs

Finserv Markets platform has some of the best ULIPs that can be invested in. Some are given below:

Bajaj Allianz Life Future Gain

It is a unit linked plan that offers flexible options to alter the amount of premium, as well as the sum assured. It also offers availing the option of receiving the maturity amount in instalments. Several riders add to the utility of the ULIP.

Bajaj Allianz Life Goal Assure 

This plan assures that the policyholder gets back the amount of life cover along with the sum assured. Incentives for regular premium payments enhance the returns. This plan is ideal for persons looking to invest for specific goals like buying a house, etc.

Bajaj Allianz Life Long Life Goal

This ULIP offers a non-participating whole life insurance plan which comes with several loyalty additions. The plan also offers several tax benefits under the Income Tax Act, 1961.

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 are the best for you.
  • If you are young or have taken loans, it is better that you invest in a ULIP that offers a sum assured that it 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,

ULIP Checklist

Ensure that you have the following documents while purchasing a ULIP.

  • Income proofs (salary slips if salaried).
  • Identity verification documents.
  • Age and address proof.


Q: Is ULIP qualified for tax deductions?

Yes. The same can be availed under Section 80C and Section 10 of the Income Tax Act.  This is an added advantage of ULIPs as they are also free from LTCG taxing.

Q: Does ULIP offer periodical payments?

Yes. However, the same is dependent on the plan you choose and the insurance company’s policies.

Q: Does ULIP have a lock in period?

Yes. It has a lock in period of 5 years.

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