ULIP vs Life Insurance

Individuals planning to buy insurance are often confused with the choice between Unit Linked Insurance Plans (ULIPs) and traditional Life Insurance policies. Both options serve as an important tool in financial planning. Understanding the fundamental differences between ULIPs and Life Insurance is essential for making an informed decision that aligns with your financial goals and circumstances.

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AUM
Returns (in %)
3 Year
5 Year
10 Year
1,663 Cr
Returns
26.72%
Returns
27.01%
Highest Returns
Returns
20.76%
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2,894 Cr
Returns
24.45%
Highest Returns
Returns
22.83%
Returns
18.66%
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2,337 Cr
Returns
23.41%
Highest Returns
Returns
19.4%
Returns
17.94%
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961 Cr
Returns
20.27%
Highest Returns
Returns
18.65%
Returns
17.15%
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6,464 Cr
Returns
19.12%
Highest Returns
Returns
17.41%
Returns
16.85%
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AUM
Returns (in %)
3 Year
5 Year
10 Year
11,380 Cr
Returns
24.25%
Highest Returns
Returns
23.2%
Returns
21.58%
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1,340 Cr
Returns
30.17%
Highest Returns
Returns
23.17%
Returns
19.65%
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5,651 Cr
Returns
29.27%
Highest Returns
Returns
26.75%
Returns
19.47%
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4,058 Cr
Returns
26.02%
Highest Returns
Returns
19.28%
Returns
19.28%
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5,938 Cr
Returns
24.72%
Highest Returns
Returns
18.51%
Returns
18.52%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
241 Cr
Returns
13.58%
Returns
14.47%
Highest Returns
Returns
12.81%
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344 Cr
Returns
13.28%
Highest Returns
Returns
12.53%
Returns
12.17%
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523 Cr
Returns
10.86%
Returns
10.83%
Returns
11.04%
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836 Cr
Returns
13.3%
Highest Returns
Returns
11.91%
Returns
11.02%
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21 Cr
Returns
13.59%
Highest Returns
Returns
11.77%
Returns
10.81%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
487 Cr
Returns
19.06%
Highest Returns
Returns
16.57%
Returns
16.12%
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243 Cr
Returns
7.25%
Returns
8.16%
Returns
9.18%
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777 Cr
Returns
5.17%
Returns
7.26%
Returns
8.29%
Highest Returns
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305 Cr
Returns
5.9%
Returns
7.06%
Returns
8.07%
Highest Returns
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466 Cr
Returns
4.96%
Returns
7.46%
Returns
8.05%
Highest Returns
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What is ULIP?

A Unit Linked Insurance Plan is a type of investment plan that combines the dual benefits of insurance and investment. Unlike traditional insurance policies that focus solely on providing a life cover, ULIPs allow policyholders to invest in a range of funds, typically including equity, debt, or a combination of both. The premiums paid towards a ULIP are divided into two parts: one for insurance coverage and the other for investment.

Key Features of ULIPs

  • Dual Purpose: ULIPs serve the dual purpose of providing life insurance coverage and acting as an investment tool.

  • Flexibility: You have the flexibility to choose the funds you want to invest in based on their risk appetite and financial goals.

  • Fund Options: ULIPs offer various fund options, including equity, debt, and balanced funds, allowing investors to align their investments with their risk tolerance.

  • Lock-in Period: ULIPs come with a lock-in period, typically five years. During this period, withdrawals are restricted.

  • Switching Options: Policyholders can switch between different funds based on market conditions and their investment objectives.

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What is Life Insurance?

Life insurance is a contract between a life insurance company and a policyholder, in which the insurance company promises to pay a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime.

If the policyholder dies while the policy is in force, the beneficiaries will receive the death benefit, which is a lump sum payment. The death benefit can be used to pay for funeral expenses, outstanding debts, living expenses for the family, or any other purpose that the beneficiaries choose.

Key features of Life Insurance

  • Death Benefit: This is the amount of money that the insurance company pays out to the beneficiaries upon the death of the insured person. It is generally tax-free for the recipients.

  • Premiums: These are the regular payments made by the policyholder to the insurance company. The amount and frequency of premiums can vary depending on the type of policy, the coverage amount, and other factors.

  • Riders: These are optional add-ons to a life insurance policy that provide additional benefits or coverage. Common riders include accidental death, waiver of premium (in case of disability), and long-term care.

Difference Between ULIP and Life Insurance 

ULIPs Life Insurance Policies
Investment Component Combines insurance with investment. Policyholders can invest in various market-linked funds. Primarily focused on providing life coverage, with no investment component.
Returns Returns are market-linked, and you can enjoy the profits.  Fixed returns 
Flexibility Offers flexibility to switch between different funds based on market conditions. Limited flexibility; usually no options for investment choice.
Risk Subject to market risks as returns are linked to the performance of underlying funds. No market risks, as returns are predetermined and guaranteed by the insurance company.
Transparency Provides transparency in terms of fund performance, charges, and policy value. Very less transparency 
Tax Benefits Eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act. Eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act.
Liquidity Allows partial withdrawals or surrender after a specified lock-in period. Limited liquidity and withdrawals may be subject to penalties.
Long-Term Perspective Encourages long-term investment due to market-linked nature. Typically designed for long-term financial security and stability.

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Which One is the Best Option?

While both ULIPs and traditional life insurance policies serve the essential purpose of providing financial security, ULIPs stand out as a versatile financial tool that combines insurance and investment benefits. The flexibility, market-linked returns, tax advantages, and transparency associated with ULIPs make them a compelling option for individuals looking to not only protect their loved ones but also grow their wealth over time. But considering the unique advantages of ULIPs, they certainly warrant serious consideration in your financial planning endeavors.

Conclusion 

Ultimately, the choice between ULIPs and traditional Life Insurance should be based on an individual's financial goals, risk tolerance, and investment horizon. It's crucial to carefully evaluate one's needs and consult with a financial advisor like Policybazaar to determine which type of policy aligns best with their long-term objectives and risk appetite.

FAQ's

  • Is ULIP better than life insurance?

    ULIPs and life insurance are both financial products that can provide financial security for you and your loved ones. ULIPs can be a good option for people who are looking for a financial product that offers both insurance and investment benefits. However, it is important to carefully consider your individual needs and risk appetite before choosing a ULIP.
  • What is the difference between term life insurance and ULIP?

    Term life insurance is a pure protection plan that provides a death benefit to your loved ones in case you pass away during the policy term. ULIPs, on the other hand, are hybrid products that offer both insurance and investment benefits.
  • Is ULIP a life insurance?

    Yes, ULIPs are a type of life insurance. They offer a death benefit to your loved ones in case you pass away during the policy term. However, ULIPs also have an investment component, which means that they can help you grow your wealth over time.

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^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^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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