ULIP vs. Endowment Plan

On the other hand, an endowment plan guarantees a lump sum amount to the beneficiary after its maturity period. The endowment plan generally comes with two types- namely, with profit and without profit. 

ULIP vs. Endowment plan is a debatable topic and can be understood by analyzing the difference between ULIP and endowment plan. 

Difference between ULIP and endowment plan. 

The major points of differences between ULIP and endowment plan are mentioned below:

1. Type

   One of the main differences between ULIP and endowment plans is the type where the funds are invested or saved. Apart from life insurance coverage, an endowment plan helps the policyholder in building his saving. At the same time, the ULIP provides life insurance coverage along with investment opportunities in various capital markets such as equity, debt, or a mix of both.

2. Lock in period

   The difference between ULIP and endowment plans can also be measured on the basis of their lock-in period. The minimum and maximum period for the endowment plan depends entirely on the payment term and chosen plan. However, the usual lock-in period varies from 2 to 3 years. 

   In the case of ULIP, there is no defined maximum period. ULIP has a lock-in period of five years. Before 2010, the minimum lock-in period for ULIP was three years. Later in 2010, the regulating authority (IRDAI) made an amendment, and the lock-in period was extended to five years. 

3. Flexibility of choosing the investment type

   The significant difference between ULIP and endowment plans is that ULIPs provide the policyholder with the flexibility to choose the investment type (equity, debts, or balance). However, the traditional endowment plan lacks this feature. Under ULIPs, the policyholder would be responsibly selecting the type of investment plan, whereas, in an endowment plan, all the investment operations are conducted by the insurer.

4. Transparency

   The difference between ULIP and endowment plans can also be measured on the basis of transparency. When it comes to transparency, an ideal investment plan is one that offers transparency in terms of performance, returns, and premiums. Unfortunately, not all endowment plans grant the investor the privilege to keep track of his investment. However, in Unit Linked Insurance Plan, the policyholder is the one who is responsible for the returns on his investment. However, in an endowment fund, all the affairs related to investment come under the administration of an insurer; hence the policyholder lacks transparency over his portfolio and the performance of this investment. This is one of the most important aspects to remember while measuring the ULIP vs. endowment plan.

5. Switching of funds

   The difference between ULIP and endowment plan clearly shows that the policyholder of an endowment plan holds limited or insignificant power. He cannot make any changes to his investments. At the same time, a policyholder of ULIP plan can control choosing and switching within the funds. He may switch to any funds at any time as per his requirement in ULIP. But, a policyholder of an endowment plan does not have any power to switch to other funds. Hence, this difference between ULIP and endowment plan suggests investors to go for ULIP if the policyholder needs to switch funds. 

6. Returns

   Another point of difference between ULIP and endowment policy is the return expectations. The policyholder gets the guaranteed fixed amount on maturity or as a death benefit in case of an endowment plan. However, in the case of ULIP, the returns explicitly depend on the market performance. Hence, in ULIP vs. endowment plan, the returns could be higher in ULIP if the funds are invested in the correct type of United Linked Insurance Plan.

Conclusion

ULIP vs. endowment plans can be compared on various aspects, as mentioned above. One can make a buying decision on the basis of these differences between ULIP and endowment plans. Both these plans include various pros and cons. Selecting between ULIP and an endowment plan can be done based on the financial need and goals of the investor. Also, if you have a higher risk appetite and are looking for better returns on your investment, you may opt for ULIP. Alternatively, if you are looking out for as safer and guaranteed returns on your investments, you may go for an endowment plan. Thus, it is important to weigh ULIP vs. endowment plans before making a purchasing decision.

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