Difference between ULIPs and Life Insurance
Table of Contents
ULIPs and term life insurance have the benefits of their own and features of their own. One provides investment opportunities while the other provides comprehensive life cover. Let us look closely at the differences between an ULIP and a life insurance product.
Difference Between ULIPs and Term Plans
Following are the points of distinction between ULIPs and term plans -
1. Scope And Nature
ULIPs are basically a combination of life insurance and investment in a sole product. ULIPs are market-linked which are most likely to yield higher returns as per the ongoing market conditions. The way ULIPs work is that a part of the premium paid by you goes into the life insurance part of the product, and the rest is invested in the market that is too in the funds of your choice, in accordance to your risk appetite and investment avenues.
Whereas, Term plans work traditionally, they perform the function of solely insurance products, i.e risk-free with fixed returns. These insurance plans provide guaranteed maturity returns and invest in low-risk return options. It also serves to provide guaranteed income to your family, in the unfortunate case of your untimely death via death benefit. You also have the option to make your plan more comprehensive by adding riders to the basic policy which extends the coverage of your policy to include accidental death benefit, critical illness benefit, waiver of premium etc.
2. Suitability
ULIPs are only suitable for you if you require an investment for a longer term. The life insurance benefit is just a section of the entire ULIP product. The real focus of ULIPs is on the investment component. The term insurance plan is present to serve your family in the form of regular income payouts or lump sum along with returns for all the premium amounts paid if you survive the whole policy term.
3. Risks and returns
If you are willing to take some risks in order to reap higher returns in the long term, then ULIPs are the best choice. There are more perks you can get with your ULIP investments. You can opt from plans that are supposed to offer regular income benefits to your loved ones or the plans which will return all the premiums paid for the cover if you survive the tenure of the policy.
4. Investment for Beginners
ULIPs have the dominant traits of an investment product. Therefore, if you are looking to invest in the market, but are not familiar with the expert knowledge to do so, ULIPs are a great way to get into the real market by eliminating the need of a fund manager. You have the liberty to choose the investment and risk profile, the options consist of equity funds, fixed income security funds, or a balanced funds. Moreover, most Unit Linked Insurance Plans allow you to track your portfolio online. There is also an option namely fund switching that helps the investor to switch between these funds as the risk appetite and changing life situations.
Conclusion
Both of these insurance products serve widely different needs, if you are willing to take some risks in your life, you can go for ULIPs. They provide higher returns but offer the option to provide stable income as well. If you desire to go for the traditional method, you can go for term life insurance, if the main motive of your insurance is receiving life cover.
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