ULIP vs. Endowment Plan

When it comes to ULIP vs. endowment plan, there are multiple questions on the minds of the investors. ULIP, or United Linked Insurance Plan, includes both insurance and investment aspects. One part of the premium covers life insurance, while another invests in instruments such as equity, debts, or a mix of both.

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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.

    Invest more and Get more with ULIP Plan Invest more and Get more with ULIP Plan
  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.

FAQ's

  • Why should you consider an endowment plan as an investment while comparing to ULIP vs endowment plan?

    The policyholder of the endowment plan enjoys benefits on the maturity of the policy term. He can facilitate a lump sum amount to fulfill his financial need and short-term goals such as educational expenditure, purchasing a house or vehicle, and other benefits per his requirement. Generally, an endowment plan's lock-in period is 2 to 3 years. Hence, it is a beneficial policy for short-term financial goals. This makes a crucial point for comparison between ULIP vs. endowment plan.
  • What is the best age to invest in an endowment plan?

    There is no preferred age to invest in this plan as it benefits investors at every age. However, it can provide the maximum profit if it is purchased at an earlier stage of life. The right time to invest in an Endowment plan is in the 20s or 30s. At a younger age, the burden on the investor is manageable. At that time, the investor has the golden opportunity to invest in an Endowment plan and pay the premium very quickly. Although you may also invest in ULIP at this age, compared to the difference between ULIP and endowment plan, investing in an endowment plan is preferable as it offers guaranteed returns.
  • What are the disadvantages of ULIP?

    Here are some disadvantages of ULIP that can give endowment plans an edge while contemplating ULIP vs. endowment plan:
    • At the initial stage, the ULIP plan asks for a high Investment that can become an obstacle for the investor.
    • The lock-in period of ULIP IS 5 Years and withdrawal before the lock-in period is not possible for an investor. 
    • Due to high market fluctuation, the ULIP plan possesses high risk and is not preferred for short-term investment.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
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~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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