Life insurance is referred to as a form of an investment, thus they are also referred to as Investment plans. These investment plans are of 2 types Unit linked Investment Plans and a traditional endowment plans. Both these types offer a policyholder life cover and a savings option, but differ in their construct.
A unit linked insurance plan invests the premium as paid by the policyholder into the stock market thus giving them returns which are volatile as they depend on the performance of the stock markets. Whereas, a endowment plan offer lower returns here as a customer does not ever get to know where such they are investing due to their opaque construct.
Where ULIP give the policyholder a lot more flexibility and transparency, endowment plans act as a guaranteed savings plan option.
Life Insurance Investment Plans
Life insurance investment plans offer the policyholder both life cover plus the added advantage of a good investment plan. A life insurance policy is always taken keeping a future objective in mind and this objective could either be a long-term or a short-term objective, like buying a house, child's marriage and education or just building up a retirement corpus. Life insurance investment plans act as a 2 in one solution.
Unit Linked Investment Plans (ULIP)
Unit Linked Investment Plans or ULIP as commonly referred to are a type of life insurance plan wherein the money paid as premium by the policyholder is invested into the stock markets. Each and every ULIP has a different set of funds that they invest in, policyholders into these funds in the form of units which are based on the correlation of the fund value of the fund they are investing into and the premium they.
E.g., if Mustakeem is investing Rs. 10,000 into a Equity Fund which carries a Fund Value of Rs. 10, he would get 100 units of the Equity fund.
Such investment plans offer a higher but more volatile return as they are directly linked to the performance of the stock market. The higher the market grws the better the returns are and vice versa. ULIPs are better savings plan as they help build up corus at a faster rate than a traditional investment plan which have very low returns
Endowment plans are the traditional form of life insurance which offer a policyholder only a life cover with very low returns. Endowment plans are usually taken by policyholders who are looking for a savings plan but one which offers them guaranteed returns in lieu of a higher life cover.
Guaranteed Return Plan
These are savings plan which offer a guaranteed amount of money to a policyholder at the end of a specific policy terms. The policyholder needs to compare and know that the guarantee he gets here is specific to set of terms and conditions of the plans. These conditions could be either a
Life Insurance Investment plans offer more than one benefit to the consumers
i. Protection to loved one's
ii. Goal based savings
iii. Act as Savings Plans which help build up corpus to fulfill a investment objective
iv. Tax Benefit under section 80C and 10(10D) of current income tax act
v. Options to obtain loan in lieu of the same
Investment plans are of different type and not necessarily all plans fulfill the investment objective that a policyholder may have. To know more about this it is always good to compare before a purchase. When we are comparing we need to look at a few things
i. If Savings we need to look at ULIP with a guaranteed return possibility
ii. For corpus building a traditional ULIP with no guarantee
iii. For a retired person a annuity plan
What is investment plan?
Investment plan is the process where you plan or expect to earn good returns though the interaction of your capital with other entity. It helps you achieve your financial goals and become wealthier if you are ready to face some risks.
Where can I invest?
Mutual funds- Here the money from various investors is pooled and utilized by the fund manager for investing in various market sectors.
Bank fixed deposit (FD) and recurring deposits (RD) - You can invest the money in bank FD and RD for a fixed period of time and avail a good amount of interest. Although you might be offered lower returns in comparison to market but here you are assured of the safety.
Insurance – On purchasing ULIP you can invest in stocks which increase your funds largely through the market.
Gold - Gold has been one of the most famous investment options and has acted great during inflation. Either you can buy the physical form or purchase its equality stock and mutual funds.
Real estate – Investing money in real estate means purchasing of property directly or indirectly in order to receive doubled amount after a span of time. Property can be residential, commercial or virtual space.
There are various other schemes wherein you can invest for good returns like post office schemes (PPF, NSC, MIPs), commodity investment or equity stocks.
How to decide where to invest?
Decision of investment is solely yours. You can have a look at the following factors before investment like your personal need or circumstance of the present time which may get influenced by your age and salary also. Secondly, your risk appetite which takes care of the security section as there might be plans which offer amazing returns but lesser security. It is basically your call to invest in market or banks but you need to make a wise decision.
What are Endowment Plans?
Endowment Plan is a type of traditional life insurance plan that offers the policyholder dual benefits of life cover and savings. Unlike ULIPs, endowment plans are not linked to the market, hence the returns are fixed, though not substantial. Endowment plan is one of the oldest and simplest forms of insurance. It is ideal for investors with a low risk appetite.
What is a Systematic Investment Plan (SIP)?
Here you can invest in a mutual find scheme at a defined interval. The NAV or Net Asset Value will define the units you might own. Through this process you can sustain the unpredictable market. The simple way of investing in SIP require you just to submit post-dated cheques with form or you can get the money transferred to mutual funds from your savings account.
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