Is Life Insurance Better Than Unit Linked Insurance Plans?

ULIP is an insurance product that offers investors the option of both insurance and investment under a single integrated plan. The policyholder can also make use of the top-up facilities, switching between funds, reduce or increase the level of protection, additional riders and option to surrender.

Traditional insurance plans provide benefits like risk cover, fixed income return, safety and tax benefit. These are the oldest types of plans that cater to those who have a low risk appetite. Traditional insurance plans are being opted as it is a stable option. This is a risk free investment. The major chunks of the investible funds are in debt instruments. Death benefit offered is sum assured along with guaranteed and vested bonus. This helps you in asset creation for a long tenure. The premiums are fixed. Withdrawals won’t be allowed before maturity.

Benefits of Life Insurance Policy

The list includes:

• Death Benefits

Life insurance enables individuals to protect themselves and their families, in case of any unfortunate happening in the life of the insurer. The insurer pays an amount equivalent to the sum assured as specified in the contract along with applicable bonuses. This is known as the death benefit.

• Investment Components

Certain whole life insurance policies offer two-pronged benefits of both insurance and investment. While one half of your premium is paid toward insurance, the other half is invested in equity, debt or combinations of both. You get the best of both worlds with a protective covering as well as high returns on your investments. You can make the most of this component by investing in funds that align with your investment horizon and risk appetite. Certain policies allow you to switch between funds as per your evolving goals.

• Maturity Benefits

Life insurance policies can also double as a savings instrument by offering maturity benefits. If the insured survives the policy term and no claims have been made, the total premiums paid are returned at the time of maturity of the policy. In this manner, your life insurance plan can have a savings component, while also offering a protective cover.

• Tax Benefits

Under the umbrella of Section 80C of the Income Tax Act (ITA), individuals can reduce their tax liabilities by investing in specific instruments. Term insurance is one of them. Under section 80C, the premium paid for your life insurance policy is eligible to attain a maximum tax deduction for up to Rs. 1.5 lakh. In addition to this, under Section 10(10D), any payouts you receive from your insurance policy are completely tax-free (provided your premium does not exceed 10% of your Sum Assured, annually). If you have opted for a health-related rider, such as a critical illness or surgical care rider, you can also avail tax deductions under 80D of the ITA.

• Coverage Against Liabilities

To fulfill your dreams and attain your goals, you may have required a certain amount of financial support - in the form of loans, mortgages and other types of debt. Be it student loans or credit card debt, dealing with such liabilities can be a source of great financial strain, without a steady stream of income. While you may have the funds to pay off a part of your loans now, your family may find it difficult to manage such liabilities in the event of your unfortunate demise, owing to the loss of income. Thus, taking a life insurance policy ensures that your family has the financial means to steadily meet your loan and mortgage repayments, even in your absence.

• Riders

You can opt for riders to enhance your life insurance coverage. A number of riders, ranging from Critical Illness to Accidental Total Permanent Disability are available and help protect you and your loved ones against instances wherein your life cover may not come into play.

Benefits Of Unit Linked Insurance Plans

• ULIP plans offer life coverage plus investment appreciation, with your money growing with equity and debt investment over time. The best ULIP plans offer stable and high annualized returns. Thus, you create an avenue for wealth over the long run.
• The ULIP offers a lower proportion of risk than most other investments that are connected to the markets. The fund house or insurance provider takes care to see that the money is invested in high-grade securities, so the appreciation is higher with a lower risk. Your investment in the ULIP policy may accrue a certain percentage of returns every year, with little chance for negative performance. Besides, you get tax benefits under Sec 80C for the premiums paid for the ULIP plan.
• You don’t need to manage your unit-linked insurance plan by yourself. There is a fund manager assigned by the insurance provider or fund house, who does the actual overseeing of the plan. However, you have the liberty of examining the annualized growth and even changing some of the unit allocations so that the appreciation on investment is higher. Plus, the fund manager can monitor daily and monthly Net Asset Value (NAVs) to steer the policy in the right direction.

Conclusion

If your objective is to provide financial stability and security to your family, it is advisable to opt for life insurance. Since choosing the correct instrument is based solely on your expectations and prerequisites, a life insurance is the better choice if you don’t want your family to bear a financial crunch after your demise.

Also read: Exploring Different Types Of Life Insurance Policies In India

Does It Make Sense For Senior Citizens To Purchase Term Insurance Policy?

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.