Unit Linked Insurance Plans(ULIPs) vs Traditional Insurance Plans

• 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.

ULIP

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

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.