There are various types of insurance plans available for you to count on. Whether it be term insurance, endowment plans, whole life policies, annuity plans, or ULIPs (Unit Linked Insurance Plans), there’s a specific type of insurance for everyone.
But there’s a noticeable difference between the ULIP and other traditional insurance plans. Don’t worry, this article will help you understand the potential differences between ULIP and other insurance plans. So, read along till the end!
What are ULIPs?
ULIP is a modern-type insurance plan that offers policyholders a dual benefit. You can also avail it as an investment plan for long-term goals. Alongside that, the primary purpose of this plan is to provide you with a life cover, as financial security for the family, in case of any unfortunate event.
With this, policyholders have special facilities such as switching between their funds, reducing/increasing the protection level, including additional riders, premium top-up, or policy surrendering. Today, ULIP investment is in high demand over investments in traditional insurance plans for its added perks.
What are Traditional Insurance Plans?
All other plans apart from ULIPs are considered traditional insurance plans. The purpose of these plans is to provide you with risk coverage, tax benefit, or fixed income in return. These are categorized as the oldest kind of insurance plan that has been helping people attain peace of mind for a long time.
It is a durable option for most families in India and is considered a risk-free investment. The death benefits offered by traditional insurance plans are a sum of the guaranteed value and the bonuses specified by the insurers.
Thus, apart from being a financial backup, traditional insurance plans are long-term asset-creation investments. It is because the premiums are fixed, and there isn’t any leverage of withdrawal before the maturity of the policy.
Differences between ULIPs and Traditional Life Insurance Plans
If you are in a dilemma of whether to go with a ULIP investment or traditional life insurance investment, then here are some features to compare:
|ULIP||Traditional Insurance Plans|
|Objective||ULIPs are long-term insurance plans that offer you great investment benefits.||Traditional life insurance plans primarily provide fixed returns after a specific tenure.|
|Investment Flexibility||ULIP enables you to invest flexibly per your specific risk profile, convenience or financial commitments.
You must decide whether to make ULIP investments in debt, hybrid funds or equity. In the future, you can also change your investment strategy.
|With traditional insurance plans, you do not get the liberty to choose your investment options.
The funds you invest are used for a specific plan or strategy at the company’s discretion.
|Transparency||Most of the ULIPs are now allowing individuals to track their investment portfolio. The companies also inform the investors with updates on the invested premium percentage and other important details.||All the premiums you pay will be invested in a standard setup. Thus, you won’t be able to track your specific investment portfolio.|
|Maturity Benefits/Payout||When the investment matures, you can redeem the units at the prevailing price of that time.
Some ULIP plans offer you additional units and loyalty annually or during maturity.
|When the policy matures, you will get the guaranteed sum and the associated bonuses if that applies to your specific plan.|
|Lock-In Period||The ULIP plans enable you to lock in your investment for at least 3 to 5 years.||Traditional life insurance plans are locked in until the decided maturity time.|
|Switching Flexibility||You get the feasibility of switching between the funds linked to your ULIP plan.||You don’t get that switching flexibility with the traditional life insurance plans.|
|Premium Top-Ups||With ULIPs, you can avail of the premium top-up facility, which will help you invest additional amounts than that of the regular premiums.||With traditional life insurance policies, you can only pay the decided or fixed premiums, as per the payment model. You cannot pay additional top-ups.|
So, this clearly explains ULIPs and how they differ from traditional insurance plans. Remember, both are best in their ways, and you just need to keep your preferences in mind. If you wish to save a good amount on tax or build your capital in the long-term ULIPs are significant for you to consider because they have a minimum lock-in period.
But on the other hand, if you don’t have extravagant requirements, staying insured is often more than enough. In such cases, you can go for the traditional life insurance plans. The choice is yours to make!