Learn The Differences Between ULIPs And Endowment Plans

There is always confusion that exists between ULIPs and endowment plans. Therefore, to determine which is the ideal choice for you, you would need to compare ULIPs and endowment plans before investing in term insurance policies. Hence, Here is an analysis of ULIPs against endowment plans, which makes it easier for you to compare both plans.

What Are Endowment Plans?

The advantages of the endowment plan are also double those of the ULIP. A person can obtain life insurance through an endowment plan while simultaneously saving money for their retirement, wedding, home, child's education, etc. This is substantially different from a ULIP. When someone chooses an endowment plan, their nominee will receive the sum insured amount in the event of that person's passing. The sum assured plus any maturity bonuses is paid to the insured if they live out the policy term.

What are ULIPs?

ULIPs are a special financial vehicle that provides both investment and double life insurance. The policyholder's ULIP premium is further divided into two portions, one of which is invested in insurance coverage and the other in the stock market. Because the investments made through ULIPs are market-linked, the returns also depend on how the market is doing at the time. The flexibility of ULIPs, as opposed to other investment options like endowment plans, is a significant advantage. One can switch their investment between debt, equity, or balanced funds depending on their level of risk tolerance.

Differences Between ULIP and Endowment Plan

Here are some of the important differences between ULIP and Endowment plans that distinguish each other.

• Coverage

1. ULIPs offer both life insurance and investment opportunities, but the essential distinction is that the policyholder chooses where the funds should be invested.

• Endowment Plan: This plan offers both life insurance and investing aspects, but since it is not market-oriented, it carries no risk.

• Returns

1. ULIP: Because ULIP returns are based on market performance, they are generally higher than those of endowment plans. 
2. Because it is not market-oriented, the Endowment Plan's return is lower than that of a ULIP, yet it can still be described as having a medium-range return.

• Trackability

1. ULIPs: ULIPs provide the option for policyholders to track and periodically review their portfolios.
2. Endowment Plan: Since the returns are predetermined and disclosed by the corporation from the outset of the policy, there is no such thing as an endowment plan.

• Maturity

1. ULIP: Only after reaching maturity may the units in a ULIP be redeemed. Before that, the person must wait until the item's maturity date to obtain anything.
2. Endowment Plan: With an endowment policy, the sum assured can be obtained in one of two ways: either the nominee will receive the sum assured plus all bonuses in the event that the policyholder passes away, or the policyholder will receive the sum assured plus all bonuses if the policyholder survives the policy term.

• Risk

1. ULIP- There is risk associated with ULIPs because the return depends on how the market performs and there is always a chance that it won't provide a significantly greater return. On the other side, if the market does well, the individual may benefit.
2. Endowment plan: There is no risk associated with this because it is not market-oriented. Additionally, the corporation guarantees everything, including the sum assured and any incentives, and in this instance, the amount will not deviate from the guarantee.

Conclusion

The opportunity to invest independently based on one's financial needs and capacity is, in essence, what distinguishes ULIPs from endowment plans. A person with long-term financial ambitions may benefit from an endowment plan since it guarantees the policyholder a specific amount of money. Therefore, one should always decide after examining all the pros and cons of both ULIPs and endowment plans.

Also Read: 

Comparing Endowment Plans With Mutual Funds

Hacks For Buying The Best Endowment Plans