ULIP vs Life Insurance

Life Insurance

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The topic of interest here is a comparative study between ULIP ( United Linked Insurance Plan ) and Traditional Life Insurance. Before getting into the crux of it, first, let’s explore what a ULIP means and signifies.

What is a ULIP?

A ULIP stands for Unit Linked Insurance Plan which is essentially a combined plan that provides both investment and insurance options inclusive. The aim of the ULIP is to provide an added benefit of life insurance cover on top of the option of growing wealth over the long run. It is devised by experts that the ground principles on which it is made are profound and ranges from premium allocation to switching of funds to the surrender option to the multiple rider add-ons, some top-up facilities, etc. A ULIP scheme is wholesome and covers each direction. The premium paid is actually divided into two parts, one that is paid into the life cover and the other that is invested in the fund of choice of the policyholder. The options available to invest are in equity, debt, or a combination of both funds as per the goals of the policyholder.

When we look at a traditional Insurance plan, it was considered a popular choice among investors before ULIPs came into existence. Such plans provide lump sum benefit upon time of death. Premiums and benefits under such plans are fixed irrespective of the death or survival of the person insured. It is considered an excellent option for availing benefits of life cover, fixed income, and tax savings.

Let’s explore the differences between a traditional insurance plan and a ULIP.

  1. A ULIP is a combination of Investment and insurance schemes whereas traditional insurance doesn’t serve both purposes.
  2. The ULIP provides returns that are market-linked and dependent upon the choice of investment funds and investment styles which offer low returns whereas traditional insurance plan provides fixed returns since the risk involved is low.
  3. The sole objective behind a ULIP is to target long-term plans that offer insurance and investment benefit whereas traditional is only bought to avail fixed returns in long term.
  4. The consumer can buy a ULIP if they want protection and more than nominal returns in the long term whereas traditional insurances only provide protection against mishaps.
  5. The money paid into the ULIP is utilized in covering expenses, equity mutual find and insurance cover whereas premium payment towards traditional insurance only goes towards expenses, insurance cover, and low-risk instruments
  6. ULIP comes with a certain degree of flexibility in the plan where the person can decide the amount proportion that is being invested used for insurance cover and the portion that goes towards investment in equity.  The traditional option does not have an option for this.
  7. The lock-in period for ULIP is a minimum of 3-5 years whereas traditional insurance has a lock-in until the maturity of the policy.
  8. ULIP does not provide any security whereas insurance is highly secured.

ULIPs have become famous as investment vehicles but an eye-catcher for those who wish to save on tax or boost their capital. There have been reports that suggest that ULIPs are soon going to overtake the popular traditional insurances should they overcome their minor defaults.

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