With a large number and variety of insurance plans available in India, you may get confused. To simplify the process, you need to have clarity about your requirements. If your motive is to only ensure the financial protection of your family in case something happens to you term plans are the best. However, if you are looking to build a corpus that can be used for the funding of other long-term goals you can go for insurance policies with an assured maturity amount. Again, if you are looking for both insurance and wealth creation you can opt for a Unit Linked Insurance Policy. Before choosing a plan for yourself you should know what is a ULIP policy and it differs from term insurance plans.
What are ULIPs?
The meaning of ULIP of Unit Linked Insurance Plans is simple to understand. It refers to an insurance product wherein a specific portion of the premiums paid by you is invested in equities, debt or a combination of both. This ensures that not only do you get life cover but also can create wealthfor funding your long-term goals. These plans come with a lock-in period of five years but allow for partial withdrawals from the 6th year onwards. The best ULIP Plans also offer you a choice to change your funds’allocation strategy from time to time based on changes in your risk appetite and age.
What is Term Insurance?
This type of insurance offers life cover for a specific time and covers only death. These simple insurance plans can be for five years to your full life. An important feature of this insurance is that If you outlive the policy term, you do not get any maturity pay out. The pay outs are done only when the policyholder dies during the policy tenure. Also, if you stop paying the annual premium at any point, the policy will end.
Difference Between a ULIP Plan and Term Insurance
The major difference between these two types of insurance plans is that term insurance is pure insurance with no added benefit. Also, the payout is made only if the policyholder dies during the policy term. In contrast, ULIPs offer insurance coverage plus a chance to earn some good returns through investment in debt, equities, or a combination of the two. You even have the option to change your allocation from time to time in a bid to maximise your returns. The use of a ULIP calculator allows you to zero in on the premium that you have to pay for a specific number of years to build the desired corpus.
Another major difference between term insurance and ULIP Plans is in terms of the premium amount. The premiums for term insurance are quite low since it covers only death. In the case of ULIPs, you have to pay premiums plus charges for several other services such as funds allocated for investment.
Which is Right for You?
The two types of insurance plans have different objectives and thus serve the requirements of two different categories of people. Term insurance plans are highly suitable for people looking to secure the financial future of their loved ones after them. They are pure insurance plans with low premiums and have no scope for any other kind of investments. In contrast, ULIPs offer both security and wealth creation and so are highly suitable for people who are looking to secure their long-term goals while having insurance cover for the financial safety of their family.Choose the policy that matches your investment motive.