Should You Go For Endowment Plan Or ULIP?

Customers can profit from ULIPs in three ways: coverage, asset accumulation, and tax savings. In ULIPs, the fee you pay is shared between investing and risk management. Depending on your risk tolerance and investment objective, you can invest in a range of funds.

While endowment and term insurance guarantee a fixed return upon the insured's death or maturity, ULIP returns are not guaranteed but can be higher due to the fund's market efficiency. With ULIPs, you may easily swap products and change your investment strategy.

Is ULIP a Better Investment Than Endowment?

A few comparisons between ULIPs and endowment plans are provided below:

1. Type of Investment

An endowment plan is a type of regular life insurance that pays out on both death and maturity. Unexpected death and incapacity are also scenarios that could occur.
A ULIP is a type of insurance that combines insurance coverage with the policyholder's capacity to generate additional income. A portion of your ability to contribute will be set away for life insurance, and the remainder will be invested in the stock market, according to the rules of this plan.

2. Option of Withdrawal

A fee is incurred if an endowment plan is withdrawn too soon. In the event of an emergency, ULIPs allow shareholders to withdraw funds from their accounts. In other cases, however, the policy requires that the living assured be at least 18 years old before an overdraft can be taken out.

3. Returns 

ULIPs are more expensive than endowment schemes since their cash flow is dependent on the performance of the stock market. This is especially true if you acquire shares in an investment vehicle. As a result, investing for a longer length of time will offer higher returns. On the other hand, endowment policies can provide rates of return at death and maturity, and are thus unaffected by currency fluctuations.

4. Transparency

There are no provisions for venture capitalists to be held accountable due to the lack of an equity stake. ULIPs are thought to be less difficult and more straightforward than other types of insurance policies. ULIPs can assist you in learning about your investment money and allocating them throughout the plan. Because they are directly linked to the market and are much more responsive to risk, ULIPs result in better communication with policyholders.

5. Purpose of Wealth Generation

ULIPs may be able to help you accumulate long-term capital. Compounding is also engaged in this instance. Compounding will help you establish a substantial portfolio if you stay invested for a long time. The ULIP NAV at maturity determines the amount. The example can help you save for the future, college, and your children's weddings. Endowment plans only offer a guaranteed maturity advantage as well as any other benefits that may be available. As a result, in terms of returns, ULIPs outperform endowment policies.

Conclusion

It's a wise decision to separate your banking and reinsurance requirements. As a result, a term policy is the best option for anyone looking for adequate coverage in a life insurance policy. Based on your financial objectives, risk tolerance, and liquidity needs, you can invest in a number of instruments across a wide range of products and asset classes. Unless you're a risk-averse investor concerned about taxes, a combination of a term plan and provident mutual funds like PPF, which provide higher returns than typical insurance plans, maybe worth considering. Consider combining a term plan with a tax-efficient ELSS mutual fund if you wish to take certain risks.

Also read- Is It Good To Invest ULIP?

What Is ULIP Calculator

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.