How Are Endowment Plans Better Than ULIPs?
Published On Jan 07, 2022 10:00 AM By InsuranceDekho
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The Unit Linked Insurance Plan (ULIP) is a type of insurance that also serves as an investment vehicle. The policyholder is responsible for paying a premium for their ULIP, just as they are for term insurance. A portion of the premium is invested in market-linked returns, while the rest is used to cover life insurance. Fund managers manage the investments, so investors don't have to. The policyholder can select whether to invest in equities, loans, or hybrid funds, and ULIPs are responsive to the risk preferences of the client. The policyholder can swap between funds over the ULIP's duration, which is typically 10 to 15 years.
ULIPs have a five-year lock-in period during which the funds cannot be withdrawn or liquidated, in order to develop the habit of regular savings. The policyholder receives a maturity benefit at the conclusion of the policy term, which can be utilized as a retirement fund, to pay your child's education, or for any other cause the investor sees proper. The nominees are paid the death benefit under the ULIP life insurance if the policyholder dies during the policy term. ULIPs have become one of the most popular insurance-cum-investment plans in India due to the promise of a maturity benefit and tax savings.
How Are Endowment Plans Better Than ULIPs?
Below are a few distinctions among Endowment Plans and ULIPs:
ULIPs, unlike term and endowment plans, allow you to invest 100 percent of your premium and then allocate the remaining funds to your policy. You can select investing strategies according to your needs, such as a kid plan, retirement, or other financial objectives.
When opposed to typical insurance plans, unit-linked insurance plans offer more flexibility in terms of money withdrawal. After the five-year lock-in period, you can withdraw your money with no surrender penalty and receive the market value of your investment. Traditional withdrawals, on the other hand, are subject to a number of restrictions, and you may be required to pay large surrender penalties to the assurer. It also gives you the option of withdrawing a portion of your investment to keep the policy alive, which is not accessible with endowment plans.
There is little transparency on the costs and investment allocation in term plans, and there is no option to watch individual portfolios in endowment policies because the premiums are invested in a pooled fund.
Unit-linked insurance plans enable you to keep track of your portfolio in terms of the proportion of premium invested as well as the fees charged.
Unit linked insurance plans, in a nutshell, allow us to invest according to our financial needs and abilities. ULIPs provide policyholders with guaranteed life insurance as well as market-beating maturity benefits. As a result, it can be an excellent long-term investment alternative as well as a safety net against life's difficulties. The endowment plan is a type of regular life insurance that provides both a death and a maturity benefit.
3. Risk Cover
ULIPs provide insurance coverage ranging from 10 times the annual payment to a maximum amount established by the provider. One of the primary differences between ULIPs and Endowment plans is this.
4. Investment Style
Natural Resources Fund, Gold Fund, and other mutual funds are particularly goal-oriented. As a result, if the fund's specific purpose fails, i.e. Natural Resources do not produce the intended results, the investor is directly impacted. ULIPs, on the other hand, do not have an objective investing style, thus there is no such fear of direct investment. Insurance company fund managers have the freedom to invest anywhere they see fit in order to maximize returns.
5. Portfolio Management
The policyholder has the opportunity to manage his or her funds through ULIPs. During the policy duration, the policyholder has the ability to adjust the allocation of his past and future investments. Premium Redirection and Switches are free with ULIPs for a limited number of times per year, but not with Mutual Funds. Switches are available in mutual funds, but only between funds with the same aim; nonetheless, each move may incur a fee.
Unit Linked Insurance Products (ULIPs) are essentially insurance items, not financial products like mutual funds. When compared to mutual funds over the same time horizon, the returns from a ULIP could be significantly lower. This is due to the fact that the goals of the two goods are vastly different. Endowment methods incorporate protection with investment to guarantee returns.
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Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.