ULIPs v/s endowment plans: Which is right for you?
What's the story
Unit-linked insurance plans (ULIPs) and endowment plans are two popular investment options in India. While both provide insurance cover and investment opportunities, they differ in terms of structure, benefits, and returns. Knowing these differences can help you make an informed decision based on your financial goals. Here are five key differences between ULIPs and endowment plans to help you choose the right option for yourself.
#1
Investment flexibility in ULIPs
ULIPs provide more flexibility in terms of investment. You can choose how much of your premium goes into funds based on your risk appetite. Equity funds for higher returns or debt funds for stability, the choice is yours. This flexibility isn't available with endowment plans, which have a fixed investment strategy.
#2
Premium allocation differences
In ULIPs, a part of the premium goes into the insurance cover, and the rest into investment funds. In endowment plans, premiums are mostly used for providing insurance cover with a small part going into savings or investment. This difference affects the growth potential of your money over time.
#3
Charges associated with ULIPs
ULIPs come with various charges like policy administration fees, mortality charges, and fund management fees. These charges can eat into your returns over time. Endowment plans usually have lower transparency regarding charges as they are built into the premium itself.
#4
Lock-in periods explained
ULIPs have a mandatory lock-in period of five years during which you can't withdraw funds without penalty. Endowment plans also have a maturity period but allow partial withdrawals after certain conditions are met without losing the policy benefits.
#5
Maturity benefits comparison
At maturity, ULIPs give you the fund value based on market performance, which can be higher or lower than the invested amount. Endowment plans provide guaranteed maturity benefits that include the sum assured plus bonuses, if declared during the policy term, making them less risky but potentially lower in returns compared to ULIPs.