India is a developing nation. It has not only blossomed economically but also financially and culturally. Moreover, the growth of the nation has positive impacts on various sectors, especially insurance. Due to the penetration of the insurance sector into the Indian markets, over 57% of the Indian adult population purchases an insurance policy every year, according to an industrial report.
There are several insurance options to choose from in the market today. However, you might usually struggle between the selection of a Unit Linked Insurance Plan (ULIP) and traditional life insurance like term policies, endowment plans, etc. Therefore, let’s begin by understanding the difference between ULIPs and traditional life insurance to avoid confusion while purchasing:
| Unit Linked Insurance Plan (ULIP) | Traditional life insurance |
| A ULIP plan is a combination of investment and insurance | Traditional life insurance plan is a pure protection plan |
| The prime objective of a ULIP plan is to not only offer financial protection to your loved ones but also ensure your participation in the capital market | The prime objective is to safeguard your loved ones in your absence |
| The premium paid goes towards your ULIP funds as well as ULIP charges | The premium goes only towards mortality charge |
| It is a market-linked product, which provides ULIP returns based on the market performance | It offers fixed returns depending on your insurer |
Both of these policies have different features and benefits. While one may be a perfect fit for you, the other might not be suitable for you. Before purchasing either of the two policies, you should consider your needs and make a selection based on its benefits accordingly. Let’s take a look below to understand how to make the right choice:
Is a ULIP policy suitable for you?
After the ULIP policy has been reintroduced in the markets, many investors prefer investing their capital into a ULIP policy than traditional life insurance. Today, investors might not fear an equity investment as much as they used to years ago. With a ULIP policy, you can invest in an equity fund if you have a high-risk appetite. If you can’t afford taking risks, you can choose debt funds for parking all your funds in a ULIP policy.
A ULIP policy allows you to diversify your investment portfolio. Apart from this, it provides other ULIP benefits that can be beneficial to you in the long run:
- Tax benefits
- Death benefits
- Flexibility & transparency
- Better returns
Should you purchase traditional life insurance?
Since traditional life insurance is a pure protection plan, you don’t have to worry about the financial stability of your loved ones in your absence. You can protect yourself and your loved one from contingencies like medical emergencies, financial crisis, and so forth. Moreover, in your absence, it would provide your nominees with a payout for their financial well-being.
Under traditional life insurance, you can select from the following options mentioned below:
- Endowment policy
Endowment plans are a combination of savings and insurance. You are eligible to receive a lump-sum amount and applicable bonus from your insurer.
- Whole-life insurance
A whole life insurance policy covers you and your loved ones for an entire lifetime.
- Money-back plan
Under a money-back plan, you can receive life coverage during the policy tenure, while the maturity benefits can be paid in installments.
- Term insurance
As the name suggests, term insurance covers your loved one for a specific duration. During the tenure of the term policy, your nominees would receive a death benefit in your absence.
As highlighted above, a ULIP plan and traditional life insurance have their own set of pros and cons. Therefore, asses the benefits of each policy to ensure your financial security in the long run. See to it that you are fully educated before making the final purchase of an insurance policy. In case of any queries, you can seek professional advice to ensure you are on the right track.
