Simplifying Life Insurance in India
What Are the Differences Between ULIP and Endowment Plans?
source: tomorrowmakers
ULIP and endowment plans are different types of insurance policies in which policyholders can get a lump sum as maturity benefits. So, these can help you build a corpus over the policy term.
However, there are several notable differences between ULIP and endowment plans, especially regarding risk, withdrawal facility, etc. You must know all the distinctions before buying either of these policies to make your purchase more cautious.
What Is ULIP?
Unit Linked Insurance Plan or ULIP is a type of health insurance policy in which you can earn significant returns. The insurance company invests a certain percentage of your premiums in different instruments like stocks of companies, bonds and government securities.
Your maturity benefit will depend on how your instruments of investment perform. In case of eventualities within the policy term, the nominees will get the assured sum.
What Is an Endowment Plan?
It is a kind of insurance policy offering a life cover and savings plan simultaneously. Your insurer will build a corpus with the premium you pay over time. When your policy matures, you will get the lump sum money as stated during its purchase. This way, you can see this insurance plan as your savings for the future.
Nevertheless, in the sudden deaths of policyholders, their nominees get a sum assured (with bonuses, if any).
Differences Between ULIPs & Endowment Plans
Here are some major differences between ULIP and an endowment plan:
|
Criteria |
ULIP |
Endowment Plan |
|
Capital Growth |
In ULIP, you get a life cover along with opportunities of growing your capital. |
In an Endowment plan, you get the life cover like ULIP, but it does not let you grow your capital. |
|
Maturity Benefit |
ULIP gives you an aggregate amount of your investment after the end of its maturity period. |
You will get a predetermined lump sum maturity benefit in the endowment plan. |
|
Traceability |
You can track how the insurance company invests your money. Furthermore, you can check your investment portfolio. |
There is no option to track how your insurance company leverages your premium. |
|
Fund Switch |
You can switch your investment instrument from debt to equity fund or vice versa as you prefer. |
Since you do not know where your insurer invests your premium, you will need an investment portfolio to switch funds. |
|
Risk |
It is open to risk because a part of your premium will stay invested in stocks and bonds. |
An endowment plan is free from this market risk because you will get a fixed amount as a maturity benefit. |
|
Partial Withdrawal |
You can break your investment to a certain limit after the lock-in period. This facility will allow you to tackle your financial emergencies effectively. |
Endowment insurance plans come with many restrictions on withdrawing money before the maturity. |
Both ULIP and endowment plans let policyholders get a life cover and thereby protect their families against financial hardships in case of premature death. Both these also come with maturity benefits. However, you must consider the differences between ULIP and an endowment plan, especially in terms of maturity benefits.
The maturity benefit is volatile in the case of ULIP as a part of your premium stays invested in the stock market and bonds. You can purchase an endowment plan if you intend to avoid this market volatility and build your post-retirement fund.
FAQs About ULIP VS Endowment Plan:
Can I add riders with the endowment plan and ULIP?
Which documents do I need to submit to buy the endowment plan and ULIP?
Here are the different documents that you need to submit while purchasing these health insurance policies:
- Age proof: Aadhaar card, voter ID card, PAN card, etc.
- Residential proof: PAN card, Aadhaar card, utility bills, etc.
What is the maturity benefit of ULIP?
As a maturity benefit of ULIP, you get whichever of the following is the higher amount:
- The aggregated value of the investment
- Sum assured amount
- 105% of the accumulated premium amount
Is ULIP better than other types of insurance plans?
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Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
