Endowment vs ULIP Plan
ULIP or Unit Linked Insurance Plan is a financial instrument that is a combination of insurance and investment. Under a ULIP, the premium paid is divided into two parts.
One part is to provide for your life insurance cover while the other part is put in investment products such as bonds, stocks, or mutual funds.
The life insurance cover depends on the sum insured, the higher the sum insured, the more the premium.
The investment fund comprises units in equities, debts, or hybrid funds. The value of such funds/assets depends on the prevailing market conditions.
The sum insured is usually the original sum insured or net asset value of all units (whichever is higher) or both.
An endowment plan is a traditional life insurance plan which guarantees a lump sum amount/payout post the survival period or on the death of the policyholder.
Apart from providing life cover, an endowment plan helps in creating savings over the investment tenure.
The savings amount is released on the maturity of the policy or to the mentioned beneficiary/nominee.
There are two types of endowment plans, one with profit and the other without profit.
Also, there are multiple variants of endowment plans which are a mixture of life cover, savings, retirement, pension, education, money-back, etc.
Which is Better? ULIP or Endowment Plan?
|Type||Insurance cum savings||Insurance cum investment|
|Lock-in||Depends on the plan and premium payment term, usually 2-3 years||5 years|
|Investment Decision||Does not have investment decision power for policyholder||Comes with investment options which can be chosen by policyholder|
|Transparency||Lacks transparency as there is no investment portfolio||Can easily track your entire investment portfolio|
|Maturity||The policyholder will receive sum assured plus bonuses, if any||Redemption of units at the prevailing unit prices|
|Fund Switching||You cannot make any changes to the policy||You have the option to make fund switches to the entire investment policy|
|Withdrawal||There are restrictions and penalties upon withdrawal||You can withdraw from the policy post the mandatory 5 year lock-in period|
|Returns||Guaranteed fixed amount||Depends on market performance|
Why Invest in an Endowment Policy?
Endowment policies offer guaranteed returns upon maturity/survival/death. The returns offered are independent of market performance and help you create savings.
In a participating policy, the insurance company distributes a part of its profit in the form of bonuses to the policyholder. Simple Reversionary Bonus and Terminal Bonus are added to the policy over the investment tenure.
Long Term Financial Goals
An endowment plan offers high returns when invested for the long term. This will help you achieve your long-term goals effectively.
Why Invest in ULIP Plan?
- Flexibility: Under a ULIP, you have the flexibility to:
- Switch the investment funds
- Make partial withdrawals
- Make lump sum additions in the form of top-ups
- High Returns: Since ULIPs offer different types of investment funds, some of these investment funds are equity-based which offer high returns over the investment period.
- Rider Options: You can enhance your ULIP scheme with rider add-ons such as accidental death rider, term rider, and critical illness rider by paying an additional premium.
- Transparency: ULIPs offer complete transparency. You can keep track of your investment portfolio. The policy provider keeps you informed of all the charges levied, the number of units issued, etc.
- Financial Security: Over the entire investment tenure, ULIPs allow an investor to accumulate a huge corpus which can be utilized for retirement planning, child education, marriage, etc.
- Funds Switching: You can easily switch between the investment funds and revise your entire investment portfolio if needed.