Which is better – ULIPs or Endowment Plans?

When you are looking to buy life insurance, the main objective would be to provide a financial net for your loved ones to face the various uncertainties of life. That is what a life insurance policy does. However, there are two popular investment instruments among the buyers of life insurance: ULIP and Endowment plan. While both come under life insurance policy, they are completely different from one another in terms of benefits and returns. Read on to know more about their differences and their benefits.

What is ULIP?

A unit linked insurance policy or ULIP is a type of life insurance that allows the policyholder the opportunity to increase their wealth through market investments. An added benefit in this policy is the life insurance cover that is provided to the loved ones of the policyholder. The premium that you pay for the policy gets divided into two: half is used for life cover and the other half is used for investing in funds. You have the option of investing in equity funds, debt funds, or both.

What is an Endowment plan?

An endowment plan is a type of life insurance that allows the policyholder to grow their savings and get a lump-sum pay out when their policy matures. If the policyholder survives the term of their policy, they will receive the pay out once their policy matures. However, if the policyholder passes away during the term of the policy, the nominee will receive an amount as a sum-assured under the plan. The savings are increased by investing in non-market linked options.

What are the key differences?

Given below are some of the key differences between a ULIP and an Endowment plan:

  1. ULIPs provide the opportunity for increasing wealth by investment in different funds to fulfil different life goals; at the same time providing life cover to deal with life risks. Endowment plans provide either death benefit or maturity benefit, depending on whether the policyholder survives through the term of the policy.
  2. In ULIPs, the insured has the option of choosing between equity and debts funds when it comes to investment. As both these investment options are market-linked, they carry low to high risk factor but give good returns. On the other hand, endowment plans offer investment opportunity only in non-market linked options.
  3. In terms of returns on investments, the returns in ULIPs depend on the type of investment and how the market is behaving. The returns could be either high or low depending on how the market is. Whereas in endowment plans, the returns are risk-free, as no market-linked investment is involved.
  4. When it comes to partial withdrawals, you can opt for them via ULIPs without any hassles. Depending on your requirement, you can go for a partial withdrawal in your ULIP policy. However, endowment plans do not allow partial withdrawals.
  5. In ULIPs, you have the option of switching between funds to maximise your returns based on your risk-appetite. This is basically a form of customising your policy as per your needs. This, however, cannot be done in endowment plans.
  6. ULIPs offer transparency to the policyholder as they can track the investments made by them. In endowment plans, there is no investment portfolio, so the policyholder will not be able to track their investments.
  7. The lock-in period for ULIPs is 5 years, whereas the lock-in period for endowment plans is 2-3 years.

Which type of life insurance should you go for?

The type of life insurance policy you want should match your requirements. If you have life goals that could include securing your child’s future, buying a home, planning for retirement or starting a business, you should opt for ULIPs. As they offer the dual benefits of investment in market funds and life insurance cover for your loved ones, ULIPs can help you in achieving both.  To know more about what kind of ULIPs you should go for, you can use the ULIP calculator available on the website of life insurance companies.

If your goal is to increase your life savings without any risks and also enjoy the benefits of a lump-sum pay out on maturity, you should opt for an endowment life insurance policy. In your absence, your loved one’s future is secured with the help of a death benefit.

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