Understanding The Difference Between Term Plan, Endowment plan and ULIP
Updated On Aug 03, 2021
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Like unit linked insurance plans, endowment plans are among the most popular life insurance products in India because they combine investment and life cover (ULIP). The ULIP on the other hand, differs from it in a number of ways. An endowment plan provides both life insurance and savings for your retirement, children's education and marriage, or a house. It's a win-win! The sum assured is paid to the policyholder's family or nominee upon the policyholder's death.
A term life insurance plan provides your dependents with pure protection (life insurance coverage).
In this article, we'll focus on three life insurance products to help you become more knowledgeable about them.
Term plans, ULIPs, and endowment plans are all different.
Difference Between Term Plan, Endowment plan and ULIP
A comparison of endowment plans, ULIPs and term plans is presented below.
Comparison Based On Key Features
The following are the differences between the three plans based on key features:
- Fulfills Dual objective of savings and insurance
- Maturity And Death Benefits
- Long Term Investment Alternative
- Flexibility of Payout
- Affordable Option
- Flexibility in Paying Premiums
- Offers Rebate
- Option For A Partial Withdrawal
- Mandatory Lock- In Period
- Fund Switching Option
- Long Term Investment Alternative
On the Basis of Affordability
Due to the fact that endowment plans include a savings component in addition to life insurance coverage, premiums are higher than term policies. Some insurance policies include additional incentives and riders, which result in higher premiums.
As a result of the life insurance and savings features, the premium is high.
Term plan premiums are low and reasonable, making them ideal for investors who are looking to save money on their premiums. Term plans are highlighted in this section as a cost-effective option because they only provide insurance coverage. The premium rate is typically modest.
ULIPs receive the highest rating out of the three due to their investment and insurance features.
Indicators of Return on Investment
ULIPs may be more expensive than endowment plans because their profitability depends on the performance of the capital market, especially if you invest in an equity fund. This means longer-term investments will result in greater returns. Unlike endowment policies, which are unaffected by market volatility, endowment policies can provide guaranteed returns at death and maturity.
The highest amount is insured under a term insurance plan. You are protected because it only covers risk.
Risk Appetite of Investors
Plans with a low risk factor include endowment and term.
Endowment plans operate independently of market conditions and do not take on any risk. Your criteria may be met, if you want to ensure that your money is completely safe.
It is possible to choose from many different risk variables in a ULIP plan. There are a variety of funds available for investors to choose from, based on their risk tolerance and investment objectives. Risky investments precede high returns in this strategy.
On The Basis of Returns
Endowment plans usually yield lower returns than market-linked Investments
Term plans: None
Under favourable conditions, ULIPs offer high returns.
It is a good idea to consider all three plans as insurance options. While endowment plans provide financial security for your family and dependents when you are no longer around. It can help maintain their standard of living, pay off any debts and provide for the important milestones in their lives when you are no longer around, a term plan offers a higher sum assured with lower premiums.
United Linked Insurance Plans (ULIPs) are designed for people who want to invest their money to build a corpus for the future. Your family is also protected from unforeseen setbacks by the life insurance coverage provided by it, as well as your future goals.
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.