The importance of life insurance is spread among most of the people, and they have started availing life insurance plans to secure their family’s future financially. But, since past few years, the aim of availing life insurance is extended to savings and investments to get a corpus for a particular goal. Thus, many insurance companies have introduced their savings and investment plans along with regular life insurance policies. When it comes to both saving and investment, usually two names are flashed in front of such namely endowment plans and ULIPs. Though both the plans are under a single category, they have a few fundamental differences. Let’s understand the basics of both the plans.
Endowment insurance is the traditional savings and investment life insurance plan. Endowment plan offers both maturity as well as death benefits as decided at the inception of the policy. Since it is the traditional plan, the policyholder is not entitled to manage his investments such as investing in a particular fund and switching between the funds. The investments are made by the insurer, by segregating the premium payments and redirecting towards the market linked funds.
On the other hand, a ULIP or Unit Linked Insurance Plan is the new generation savings and investment plan where the insurer allows you to choose the best suitable fund for you. Furthermore, you can also switch between the funds if the market doesn’t perform well, as anticipated. ULIPs also offer a particular sum assured as both guaranteed death and maturity benefits.
Since both the plans have some common advantages such as guaranteed death/maturity benefits and tax benefits, the affordability of the plan is also a factor to be considered. Traditional plans are less expensive than ULIPs. The riders can be purchased for both the plans but again it will be add-on feature availed at additional premium payment.
The most important factor that comes into the picture is the risk associated with the savings and investment plans. Traditional plans are considered to be less risky than that of ULIPs. It is because ULIP is an aggressive type of investment plans that allow you focus more on equities and other aggressive funds. Though endowment plans do not provide any provision for choosing the funds, the companies have the professionals with south knowledge of the market. The investment risks are bared by the insurer, and as a result, the return on investment offered to the policyholder is a bit low.
Considering the risk factor and other specifications of the plans, if you are the person with less or moderate risk hunger, an endowment plan is the best suitable for you. If you don’t mind investing in the aggressive plans with high risk, you also have an option to go for ULIP. The choice is yours!