• Unit Linked Insurance Plans(ULIPs) vs Traditional Insurance Plans

    Life Insurance
    • Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
    • Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
    • Do more with plans that offer pure protection, retirement planning and investment options

    ULIPs are slightly different from traditional insurance plans and hence It can be normal for you to be confused regarding which product is the most suitable for yourself. But, it is equally important to understand how a ULIP is different from a traditional insurance plan before you decide to buy a scheme.

    Before you decide to purchase any insurance plan for yourself, you must be clear regarding your financial requirements and your future goals and accordingly choose a plan for yourself.


    A Unit Linked Insurance Plan better known as ULIP is an insurance plan in which a part of your money is kept as a protective cover and the rest is invested in different investment tools. There are different funds which have their own purpose to serve and you can choose to allocate the proportion of your savings in different funds as per your choice. ULIPs are considered to be risky in nature but the returns can be high or low depending on the market performance.

    Traditional Insurance Plans

    There are different types of insurance plans such as term insurance, whole life insurance, and endowment plans which all have a different purpose to serve.

    • Term Insurance Plan- This plan can be availed for a fixed period of time. The policy terms can range from 5 years to 60 years and its aim is to provide protective cover to you. Unfortunately, in the unfortunate event of your death, the nominee will receive a lump sum called the death benefit. This plan is cheaper in nature.
    • Whole Life Insurance- You are protected for a longer period of time. This plan is slightly expensive as compared to a term insurance plan. Apart from that, you are also eligible for various benefits as well. Various plans provide you with maturity benefit as and when your policy attains maturity. This kind of plan also makes you eligible for various tax benefits as well.
    • Endowment Plan- If you avail an endowment plan, you are not only provided with a protective cover but a percentage of your money is kept aside as savings. This means that you are assured of a lump sum of money even after your policy attains maturity.

    Comparison between ULIPs and Traditional Insurance Plans

    Parameter ULIP Traditional Insurance Plans
    Description Aims to provide protection as well as invest your savings in different tools. Aims to provide only protective cover.
    Objective These are long-term plans that aim to provide both protection and maximise your savings by investing in different market instruments. Plans which aims to provide cover. Do not invest your money in any market tool, hence the returns are generally fixed.
    Returns Returns can be high or low depending on the market performance. Returns are fixed.
    When to consider buying the plan If you want to not only protect your and your family’s future but also want to maximise your savings keeping in mind your long-term dreams. If you want to be provided with a protective cover. The protection can be provided for either short term or long term period.
    Flexibility ULIPs are extremely flexible. You can decide the funds in which you want to invest including the percentage of the money you would allocate to each fund. Since your money is not invested anywhere, there are no funds involved. Hence, no flexibility.
    Tax benefits Tax benefits are available under Income Tax Act,1961. Tax benefits are available under Income Tax Act,1961.
    Security There is no security involved. Traditional insurance plans are highly secured.
    Switching Options You can switch from one fund to another depending on the market performance. This option is not available.
    Ideal Term Long Term Can be both short term or long term depending on your financial goals.
    Regulatory Body IRDAI IRDAI
    How is your money utilised The premium paid is used to provide you cover, invest your money in different market tools and other expenses. The premium paid is used to provide you cover and other expenses.
    Withdrawal You have the option of withdrawing a certain amount of money. The option to withdraw a certain amount of money, may or may not be available.
    Lock-In Period 3-5 years The plan is generally locked in till it attains maturity.

    Which one is better?

    As mentioned earlier, which type of insurance plan is better for you will depend on your financial requirements and future goals. It is generally recommended that you should go for a traditional insurance plans since it provides a protective cover and secures your and your family’s future. The risk involved is less as compared to ULIPs and returns are fixed in nature. A ULIP, on the other hand, is ideal for those who have an appetite for risks and not only want to secure their family financially but also want to maximise their savings. The risks as mentioned earlier are high and the returns can be low depending on the market performance. If you are planning to purchase a ULIP, it is important that you consider all the pros and cons before deciding to avail a plan. You must be mentally prepared to bear loses as you would be happy to see your money grow. Buy this plan if you are ready to take a certain degree of risk. Otherwise, it is best to go with a traditional insurance plan and invest your savings in various other investment tools based on your financial requirements and future goals.

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