There are numerous options accessible in the market when it comes to selecting a life insurance policy. Term plans, endowment policies, and Unit Linked Insurance Plans are three prominent options (ULIPs). Each insurance has its unique set of features and benefits, and the best one for you is determined by your specific needs and financial goals. We attempt to compare term plans, endowment policies, and ULIPs in depth in this post.
Scroll to know the comparison among term plans, endowment policies, vs. ULIPs
Term Plan
A term plan is a pure life insurance policy that offers coverage for a set period. The policyholder pays a premium to the insurance provider, and if they die unexpectedly within the policy term, the nominee obtains the death benefit. Term plans lack a savings feature, and the premiums are modest in comparison to other types of life insurance policies.
A term plan has the following advantages:
- High cover at a reasonable cost
- Ability to select the policy term based on your needs
- A policy that is simple and straightforward
- Tax breaks are available under sections 80C and 10(10D) of the Income Tax Act of 1961.
- Riders can be installed to provide additional protection.
Drawbacks of purchasing term plan
- There is no saving component.
- There is no maturity benefit.
- If the policyholder survives the policy period, the premium paid is not returned.
Who should choose a term plan?
A term plan is an excellent option for people who want to guarantee their family’s financial future in the event of their early demise. It is also appropriate for people seeking comprehensive coverage at a low cost.
Endowment policy
An endowment policy combines insurance and savings. The policyholder contributes a premium to the insurance provider, and if they die within the policy term, the nominated receives the death benefit. If the insured lives to the end of the policy term, they will receive the maturity benefit, which is the sum assured plus any accrued bonuses.
Endowment policies have the following advantages:
- Assured profits
- Maturity bonus if the insured lives to the end of the policy term
- Savings component that can be used to achieve future financial objectives
- Tax breaks are available under sections 80C and 10(10D) of the Income Tax Act of 1961.
- Riders can be installed to provide additional protection.
The disadvantages of an endowment policy are as follows:
- When compared to term policies, these plans provide less coverage for a larger cost.
- Investment possibilities are limited.
- When compared to other investment tools such as mutual funds and equities, returns are less.
Who should consider purchasing an endowment policy?
Those who want to blend insurance and savings into a single policy can consider an endowment policy. It is appropriate for people seeking an assured return on their investment.
ULIP
A ULIP is a product that combines insurance and investment. The policyholder pays a premium, which itself is divided into two parts: one for life insurance coverage and the other for investment in various funds such as equities, debt, and balanced funds. The policyholder can move between funds according to their risk tolerance and investing objectives.
ULIP Advantages:
Insurance and investing both provide benefits.
- The freedom to select the premium amount, policy term, and investment funds
- More returns than standard endowment policies
- Tax breaks are available under sections 80C and 10(10D) of the Income Tax Act of 1961.
The following are the disadvantages of a ULIP:
- Increased fees when compared with other kinds of life insurance policies
- Market risks affect investment returns.
- If the policyholder wishes to terminate the coverage before the lock-in period expires, they may be required to pay a surrender charge.
Who should consider purchasing ULIP
A ULIP is an excellent alternative for people who are willing to take risks and wish to integrate protection and investment into a single policy. It is appropriate for those with a long investing horizon who want larger returns than typical endowment policies.
Read More: Basics to know before choosing term insurance plans
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