Income Plan vs. ULIP - Major Differences You Should Know

Life insurance is a financial tool that provides financial protection to policyholders. In order to meet each person's specific needs, a large number of insurance companies offer a wide range of life insurance products. ULIPs and income plans are among them. You should thoroughly understand the differences between each and every type of life insurance product before making a decision about your investments. This will help you invest your hard-earned money in the right insurance products. This blog will help you learn the differences between income plans and ULIPs. 

What is a Guaranteed Income Plan? 

Guaranteed income plans are a type of life insurance product that provides life insurance coverage along with a guaranteed maturity benefit to the policyholder at the end of the policy tenure. The insurer pays the insured a regular income at a pre-defined percentage of the sum assured. You can choose to receive the income generated from your plan on a yearly, half-yearly, quarterly, or monthly basis. Moreover, with a guaranteed income plan, policyholders may get a bonus depending on the market performance. 

What is ULIP Plan? 

Unit Linked Insurance Plans, also known as ULIPs, provide dual benefits to the policyholders. This means that the  ULIP plan policyholder will get both life insurance coverage and returns on market-linked investments. You can choose to invest your funds in equity or debt, depending on your risk tolerance. ULIPs can help you create a corpus of funds over a long period of time. 

Difference Between Income Plans and ULIP Plans

Though both income plans and ULIPs are life insurance products, they are different from each other. Some major differences between income plans and ULIP plans are highlighted below. 

• Return on Investment: The income plan provides guaranteed returns in the form of regular monthly or yearly payments along with insurance coverage to the policyholders. However, ULIP plans are endowment plans in which a portion of funds is invested in market-linked avenues and the other portion is used to provide life insurance coverage. 
• Flexibility: Under ULIP plans, the policyholder has the flexibility to switch between the funds anytime during the policy period. However, income plans do not flexible in nature. The guaranteed return for your investment is decided mutually between the insurer and the insured at the beginning of the policy period. 
• Liquidity: ULIPs are long-term investment plans that come with a lock-in period of five years. This means you can partially withdraw your funds after completing the lock-in period. However, unlike ULIPs, guaranteed income plans provide regular monthly earnings for a specified duration starting from the maturity date. 
• Risk: As the name suggests, guaranteed income plans provide regular payouts to the policyholders. Therefore, the risk associated with guaranteed income plans is low. However, ULIP plans possess a high risk for investors as market volatility impacts the return on your investment. 

Things to Keep in Mind While Purchasing Life Insurance Plans

You should consider certain factors when purchasing a life insurance policy. Some of them are mentioned below. 

• Financial Goals: One of the most important factors you should consider before investing in any life insurance plan is your financial goals and objectives. You can purchase a guaranteed income plan if you want regular payouts to manage your monthly budget. However, if you want to achieve long-term financial goals, you can invest in ULIPs.
• Compare Different Quotes: There are many life insurance companies that provide guaranteed income and ULIP plans. Therefore, you must compare different quotes from the companies and choose the one that provides maximum insurance and investment return benefits. You can either browse the official company’s websites by yourself or contact InsuranceDekho which provides personalized life insurance advice to customers. 
• Policy Tenure: The policyholders must consider the policy duration for which they want to invest their money. If you want to achieve your short-term financial goals, you can invest in guaranteed income plans. However, if you want to accomplish your long-term objectives, then you can purchase ULIP plans. 

Conclusion 

Both income plans and ULIPs are life insurance products. The crucial difference between both of them is risk. Anyone who wants to receive high returns and is willing to bear the high risk can invest in ULIPs. Otherwise, you can invest in guaranteed income plans.

Also read: Types of Bonuses in Life Insurance