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ULIP vs Endowment Plan

ULIP or Unit Linked Insurance Plan is a financial instrument which is a combination of insurance and investment. Under a ULIP, the premium paid is divided into two parts. One part is to provide for your life insurance cover while the other part is put in investment products such as bonds, stocks or mutual funds. The life insurance cover depends on the sum insured, the higher the sum insured, the more the premium. The investment fund comprises of units in equities, debts or hybrid funds. The value of such funds/assets depend on the prevailing market conditions. The sum insured is usually the original sum insured or net asset value of all units (whichever is higher) or both. An endowment plan is a traditional life insurance plan which guarantees a lump sum amount/payout post the survival period or on death of the policyholder. Apart from providing life cover, an endowment plan helps in creating savings over the investment tenure. The savings amount is released on maturity of the policy or to the mentioned beneficiary/nominee. There are two types of endowment plans, one with profit and the other without profit. Also, there are multiple variants of endowment plans which is a mixture of life cover, savings, retirement, pension, education, money-back, etc.

Which is Better? ULIP or Endowment Plan?

CriteriaEndowment PlanULIPs
TypeInsurance cum savingsInsurance cum investment
Lock-inDepends on the plan and premium payment term, usually 2-3 years5 years
Investment DecisionDoes not have investment decision power for policyholderComes with investment options which can be chosen by policyholder
TransparencyLacks transparency as there is no investment portfolioCan easily track your entire investment portfolio
MaturityThe policyholder will receive sum assured plus bonuses, if anyRedemption of units at the prevailing unit prices
Fund SwitchingYou cannot make any changes to the policy You have the option to make fund switches to the entire investment policy
WithdrawalThere are restrictions and penalties upon withdrawalYou can withdraw from the policy post the mandatory 5 year lock-in period
ReturnsGuaranteed fixed amountDepends on market performance

Why Invest in ULIP Plan?

Following are the reasons you should invest in a ULIP scheme:

  • Flexibility: Under a ULIP, you have the flexibility to:
    • Switch the investment funds
    • Make partial withdrawals
    • Make lump sum additions in the form of top-ups
  • High Returns: Since ULIPs offer different types of investment funds, some of these investment funds are equity based which offer high returns over the investment period.
  • Insurance cum Investment: A ULIP provides life insurance cover as well as investment. You get protection for yourself and your family along with the benefit of wealth creation.
  • Rider Options: You can enhance your ULIP scheme with rider add-ons such as accidental death rider, term rider, and critical illness rider by paying additional premium.
  • Transparency: ULIPs offer complete transparency. You can keep track of your investment portfolio. The policy provider keeps you informed of all the charges levied, number of units issued etc.
  • Funds Switching: You can easily switch between the investment funds and revise your entire investment portfolio if needed.
  • Financial Security: Over the entire investment tenure, ULIPs allow an investor to accumulate a huge corpus which can be utilised for retirement planning, child education, marriage, etc.

Why Invest in an Endowment Policy?

Following are the reasons you should invest in an endowment policy:

Guaranteed Returns

Endowment policies offer guaranteed returns upon maturity/survival/death. The returns offered are independent of market performance and help you create savings.

Bonus

In a participating policy, the insurance company distributes a part of its profit in the form of bonuses to the policyholder. Simple Reversionary Bonus and Terminal Bonus are added to the policy over the investment tenure.

Long Term Financial Goals

An endowment plan offers high returns when invested for a long term. This will help you achieve your long term goals effectively.

FAQs on ULIP vs Endowment Plan

Is endowment plan a good investment option?

Yes, an endowment plan is an excellent investment option as it offers 360 degree protection to your family along with savings.

Is it good to invest in ULIPs?

Yes, ULIPs, unlike endowment plans, offer market linked investment options which can yield high returns.

Is ULIP good for long term?

Yes, ULIP is an excellent option for a long term investment horizon which helps in getting compounding returns.

What is a NON-ULIP policy?

All traditional endowment life insurance policies are categorized as NON-ULIP policies.

Which endowment plan is best?

The decision is based on an individual’s requirement which is different for different people.

Which plan is better? Term plan or endowment plan?

This is more or less depended on the investment goal of the policyholder.

Which is better? PPF or ULIP?

This is more or less depended on the investment goal of the policyholder.

Which is the best endowment policy from LIC?

The LIC New endowment policy is one of the best endowment policies offered by LIC.

Which is the best ULIP in India?

The decision is based on an individual’s requirement which is different for different people.

Why is ULIP not good?

ULIP is not a good option for risk averse people or people who want guaranteed returns. Since, the investment is made in capital markets it carries a high level of risk.