Today, as our major focus is still on revenue creation, most of us here overlook the importance of striking the correct balance between risk and security. The Unit Linked Insurance Plan is an insurance policy that can assist you in reaching this balance between income security and life ambitions. ULIPs offer a number of benefits that typical life insurance plans, such as term and endowment plans, do not. Understanding the important features of these three is essential to make well-informed judgments regarding your financial goals. In this blog, we will examine ULIPs, endowment plans, and term plans to assist you in making this selection. Let’s dive in,
What is Endowment Insurance Plan
An endowment insurance plan is a sort of life insurance plan that combines insurance coverage with a savings plan. It allows you to save consistently over a certain period of time in order to get a single payment at policy maturity if the insured outlive the policy term. As per the policy rules and regulations, the policyholder receives the sum assured in the future. Yet, in the event of the policyholder’s untimely death, the insurance provider will pay the sum insured to the policy’s beneficiary. Furthermore, it may be used to ensure yourself or your family’s post-retirement or to satisfy other financial demands such as financing for children’s school and/or wedding or purchasing a home.
An endowment policy can be either ULIPs or non-ULIPs. Endowment plans are offered in a variety of forms on the market. Endowment insurance typically provides a bare-minimum insured sum on maturity, and the premiums you pay on them are tax-deductible up to Rs.1.5 lakh as per Section 80C of the Income Tax Act.
What are ULIPs?
The full name of ULIP is Unit Linked Insurance Plan, and it is a multi-faceted life insurance policy. A ULIP plan combines life insurance and investing. As an insured person, you must pay regular monthly premiums, a portion of which is used to offer life insurance coverage. The remainder is combined with assets acquired from similar policyholders and invested in financial products like mutual funds. Investing in a ULIP allows you to be financially secure in the event of an emergency while also growing your money.
A ULIP is a chance to participate in a variety of market-related assets such as equities, debt, and balanced funds in order to earn long-term investment returns. ULIP stands for Unit Linked Insurance Plans, and it indicates that your investments in funds are vulnerable to market swings. Therefore, based on your risk tolerance and investing objectives, you may use a ULIP plan to invest in a range of fund alternatives. When compared to FDs and debt mutual funds, ULIPs can be an appealing alternative for risk-averse investors since they allow them to deploy more funds into the debt class, and capital gains are taxed at a reduced rate. Yet, you need to pay a higher premium for life insurance than for a term policy. As a result, unless you pay a high premium, it may not provide appropriate life insurance.
How ULIP works?
Individuals who want to know how to buy ULIP should know how it works. As a long-term investment approach, ULIP implies giving several possibilities for wealth growth. Therefore, it is known as one of the more preferred wealth creation plans in India. The ULIP, on the other hand, as a life insurance policy, is intended to give more diverse returns in the manner of life insurance cover. ULIP payments are handled by specialized fund managers hired by the insurance provider. As a result, there is no need for you to keep track of the transactions on your own. You may watch the progress of the individual ULIP plan fund alternatives and swap between them to optimize profitability and deal with industry fluctuations if you like.
What are Term Insurance Plans?
Term plans are pure insurance policies that provide your family with financial protection against the serious risk of harm of your death. This is a necessary product for everybody who has financial dependents and responsibilities. Term plans do not provide investment advantages in the same way that ULIPs do. As a result, they do not give maturity or surrender value. This is the reason they are so inexpensive. This is the most crucial advantage of a term policy: as compared to endowment plans or ULIPs, you may acquire a larger life coverage for a longer period of time at cheaper premiums that stay constant throughout the policy length.
Therefore, if you want enough life insurance coverage— at least 10x the present yearly salary— at a low price, a term plan may be the best choice for you. In addition, if you’re looking for your first life insurance policy, make it a term policy. Because of the low prices, you will have more money to invest in a variety of assets, including but not limited to similar insurance policies.
Like any investment or insurance product, ULIPs, endowment plans, and term plans have advantages and disadvantages. It is critical to identify and select a life insurance program that provides you with the greatest benefit depending on your investment objectives, time horizon, and risk tolerance. Before you purchase, conduct your own analysis and gain as much knowledge about these items as possible, and don’t miss reading the policy terms and conditions.
If you want to maintain your insurance and investing requirements apart. As a result, a term plan is ideal for anyone looking to purchase an insurance policy with a sufficient life coverage level. For investment reasons, you can select a mix of instruments from various plans and asset classes on the basis of your investment goals, risk tolerance, and more.
If you are an investor trying to avoid taxes, consider combining a term plan with provident fund investments like PPF, which give greater returns than typical insurance policies. If you choose to take risks, a mix of a term plan and tax-efficient ELSS mutual funds would be excellent since they would help you generate wealth while still providing appropriate coverage.
After you have adequately protected yourself with a term plan, you could consider other investment choices such as ULIPs, endowment plans, provident funds, ELSS, and so on, as well as non-tax-saving plans such as debt funds, equity funds, fixed deposits, gold, real estate, and so on, depending on your investment goals and risk tolerance.