Simplifying Life Insurance in India
Term Plan vs Endowment Plan vs ULIP: Which Investment Option Is Better?
source: dailyexcelsior
Purchasing a life insurance policy is essential as it provides financial security to the policyholder’s family. Often, people choose a policy based on family and acquaintances' recommendations. Individuals also consider the premium, sum assured, and policy tenure.
However, there are many types of life insurance plans available in the market. India's three most popular insurance plans are term plan, endowment plan and ULIP. This blog discusses the differences between term plans, endowment plans and ULIP.
What Is a Term Plan?
What Is an Endowment Plan?
What Is ULIP?
ULIP stands for Unit-Linked Insurance Plan, combining the benefits of life insurance policies and investments, like an endowment plan. When an individual purchases a ULIP policy from an insurance provider, he/she pays a premium.
The insurance company takes the premium and divides it into two parts. Part of the premium is used to purchase a life insurance cover. The remaining amount is pooled with money received from other policyholders and invested in market-related securities, like mutual funds.
| Factors | ULIP | Endowment | Term Plan |
| Protection | ULIP offers life cover plus investment options. | It provides life coverage plus investment benefits. | Term Plan only provides life coverage. |
| Returns | Returns depend on market conditions and the performance of funds. | Investors will receive guaranteed returns. | No guarantee of return except with a Term Plan with Return of Premium (TROP). |
| Premium | Depends upon the plan chosen. | High premium rate because of life insurance and savings features. | The premium rate is usually low as they offer only the death benefit. |
| Risks Involved | ULIPs invest in various types of securities like equities, money markets and debts. Hence they are highly risky investments. | Less risky and policyholders do not have the option to change their risk exposure. | No risk, and the policyholder cannot change their exposure to risk. |
| Flexibility | Policyholders can easily switch between funds and change the strategy of their investments. | Policyholders do not receive any flexibility. | One will get flexibility only in terms of add-ons and nothing else. |
| Transparency | One can easily track his or her portfolio. | The tracking option is not present. | Non-applicable |
| Maturity Benefits | Investors can redeem their fund units based on the prevailing NAV after the policy has matured. | The nominee will receive death benefits alongside any other bonus after maturity. | Typically there are no maturity benefits involved. |
ULIP, endowment and term plan are all popular financial tools that can ensure financial protection for your family. However, all these three plans have pros and cons. It is up to you to choose between term plan vs endowment plan vs ULIP based on your requirements and life goals.
Before you invest, you should consider factors like your risk appetite, investment goals and the policy term.
FAQs on the Difference Between Term, ULIP and Endowment
What are the eligibility criteria for a term insurance policy?
The eligibility criteria for a term plan are as follows:
- Policyholders should be above 18 when taking the term plan under their name.
- Sum assured is also a determining factor, as a term policy's main feature.
Why should one invest their money in ULIP policies?
One should invest their money in ULIP policies for the following reasons:
- ULIP allows policyholders to withdraw partially.
- Individuals can easily switch between investment funds.
- Policyholders will also get rider options like term rider, accidental death rider and critical illness rider. These add-ons will help the policyholders to enhance their ULIP plan and receive more benefits.
Are endowment plans a good investment option?
Can I keep track of my ULIP investment?
Important Guides related to Life Insurance
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.
