Why Should I Go For Endowment Plans Instead Of ULIPs?
Table of Contents
ULIP or Unit Linked Insurance Plan is a financial instrument which is a combination of insurance and investment. Under a ULIP, the premium paid is divided into two parts. One part is to provide for your life insurance cover while the other part is put in investment products such as bonds, stocks or mutual funds. The life insurance cover depends on the sum insured, the higher the sum insured, the more the premium. The investment fund comprises units in equities, debts or hybrid funds. The value of such funds/assets depend on the prevailing market conditions. The sum insured is usually the original sum insured or net asset value of all units (whichever is higher) or both. An endowment plan is a traditional life insurance plan which guarantees a lump sum amount/payout post the survival period or on death of the policyholder. Apart from providing life cover, an endowment plan helps in creating savings over the investment tenure. The savings amount is released on maturity of the policy or to the mentioned beneficiary/nominee. There are two types of endowment plans, one with profit and the other without profit. Also, there are multiple variants of endowment plans which is a mixture of life cover, savings, retirement, pension, education, money-back, etc.
Why Invest in a ULIP ?
Following are the reasons you should invest in a ULIP scheme:
Flexibility
Under a ULIP, you have the flexibility to:
- Switch the investment funds
- Make partial withdrawals
- Make lump sum additions in the form of top-ups
High Returns
Since ULIPs offer different types of investment funds, some of these investment funds are equity based which offer high returns over the investment period.
Insurance cum Investment
A ULIP provides life insurance cover as well as investment. You get protection for yourself and your family along with the benefit of wealth creation.
Rider Options
You can enhance your ULIP scheme with rider add-ons such as accidental death rider, term rider, and critical illness rider by paying additional premium.
Transparency
ULIPs offer complete transparency. You can keep track of your investment portfolio. The policy provider keeps you informed of all the charges levied, number of units issued etc.
Funds Switching
You can easily switch between the investment funds and revise your entire investment portfolio if needed.
Financial Security
Over the entire investment tenure, ULIPs allow an investor to accumulate a huge corpus which can be utilised for retirement planning, child education, marriage, etc.
Why Invest in an Endowment Policy?
Following are the reasons you should invest in an endowment policy:
Guaranteed Returns
Endowment policies offer guaranteed returns upon maturity/survival/death. The returns offered are independent of market performance and help you create savings.
Bonus
In a participating policy, the insurance company distributes a part of its profit in the form of bonuses to the policyholder. Simple Reversionary Bonus and Terminal Bonus are added to the policy over the investment tenure.
Long Term Financial Goals
An endowment plan offers high returns when invested for a long term. This will help you achieve your long term goals effectively.
Conclusion
So, this sums up the comparison between endowment plans and ULIPs. Despite these differences, they do have one common aspect - tax benefits. Both ULIPs and endowment plans offer tax benefits under section 80C and section 10(10D) of the Income Tax Act, 1961. As per section 80, the premiums that you pay can be deducted from your total income. This will reduce your tax liability. And as per section 10(10D), the death benefits and maturity benefits are exempt from tax.
