Term, ULIP and Endowment plans – Know the Difference
Insurance products are often considered to be tools for risk-mitigation. This means that, at a time of emergency they can financially secure you and your family. However, insurance can do much more. The function that insurance serves for you is based on your selection of plans. In addition to financial security, insurance can help you find tax-saving options. Moreover, insurance can also do the job of an investment tool. This way, you are not only securing yourself but growing at the same time.
Based on your goals and objectives, there are different types of life insurance plans you can buy. These include term plans, ULIP, and endowment plans. But which one should you choose? To answer that, you need to understand the differences.
Term Plans
Term plans give your family members coverage against the scenario of your sudden demise. Mainly, it offers a sum assured as the death benefit along with a disability benefit depending on your insurance provider. A term plan is an ideal option for someone that has financial dependents. For example, if your wife is a stay-at-home mom and your kids are still young, a term insurance plan is the right tool to have.
However, term plans do not offer any extra features. There are purely based on coverage in case of an unfortunate event. This is one of the reasons why they are so affordable. Compared to other options, term plans offer the biggest life cover. This policy can be bought at a cheaper price at a young age. Due to the lesser risk of any disability, insurance providers tend to charge less premium.
ULIPs
ULIP is a market linked life insurance plan that puts a share of the money you pay as premium into the right investment opportunities. The rest is accepted as payment for the life coverage. However, for this reason, the life coverage that you may have in ULIPs will be considerably lower than term plans.
In terms of investment options, ULIPs offer flexibility to allocate your money between equity and debt asset classes. Like many other insurance policies, ULIPs offer a tax deduction benefit as per Section 80C of the Income Tax Act. If you are someone that wants to generate wealth aside from your regular income, ULIPs are the option for you.
Endowment Plans
Endowment plans satisfy two purposes. It allow you to get life coverage along with a mechanism for saving money over time. These plans are preferred as they not only offer life cover to the insured in case of unfortunate events, but also maturity amount if the policyholder survives the policy term.
Endowment policies include various features such as higher returns, flexible premium payment option, tax benefits, cover flexibility such as inclusion of riders such as total disability, accidental death, critical illness.
In endowment plans, there is a lock-in period of 2-3 years. This means that you cannot make a withdrawal until a fixed period of time. Secondly, unlike ULIPs (returns depend on market performance of funds), endowment plans offer guaranteed returns.
Overall, make sure to consider various aspects of all the three insurance products mentioned above in order to make a decision that best suits your requirement. In addition, this will help you avoid any hassles later on.
