Is an Endowment Policy Better or a ULIP Policy?
While traditional plans like endowment policies have been popular for a long time, many people now prefer purchasing unit-linked plans. If you are confused between the two, this post will help you understand the differences and pick the best as per your requirementsuiThe dual benefits of life cover and savings have made endowment plans a popular choice in India. But a large number of people, especially ones in their 20s and 30s, now prefer unit-linked plans over traditional plans like endowment plans.
If you are planning to purchase life insurance but cannot decide between endowment plans and unit-linked plans, these differences between the two can help you make the right decision-
- Purpose of Policy
Endowment policies combine the benefits of life insurance and saving. Apart from the life cover, endowment plans help you save money for a variety of long-term goals like retirement, your child’s education, and more. Some insurers also offer different types of ‘with profit’ and ‘without profit’ endowment policies.
Unit-linked plans, on the other hand, are insurance cum investment products. While the endowment plan aims at long-term savings, a unit-linked policy focuses on long-term wealth creation. In ULIP, a part of the premium you pay is invested in a fund of your choice, and the policy generates market-linked returns.
- Decision-Making Power
With endowment plans, you don’t receive multiple fund options. The premiums collected from all the policyholders are invested in the same savings fund by the insurer. Once you have purchased a policy, no choice is provided to change your investment fund.
Unit-linked plans are known to be highly flexible in this matter. You receive multiple fund options like equity, debt, and hybrid. You can switch between funds even after purchasing the policy. It is also possible to switch between funds multiple times throughout the policy tenure.
- Maturity Benefits
Endowment plans have the concept of bonus, which the policyholder accumulates by regularly paying the premiums throughout the policy tenure. If the policyholder survives the tenure of an endowment plan, he/she receives the sum assured along with the accumulated bonuses.
Similarly, in a few unit-linked plans, the policyholder receives additional units based on the fund of their investment. On survival, the policyholder can sell the fund units, including the additional ones, if any, at the prevailing market prices.
- Investment Tracking
Once you invest in an endowment plan, there is no option to track your investment. There are no individual portfolios created. The premiums collected from all the policyholders are invested in a common fund.
With unit-linked plans, a portfolio is created for every policyholder. You can track the portfolio, check fund performance, and even switch between the funds to generate higher returns.
- Withdrawals and Lock-in
The lock-in period in endowment plans is the maturity period of the policy. Premature withdrawals are restricted and result in penalties. Once you purchase an endowment policy, it’d be wise to continue paying the premiums till maturity.
ULIPs have a lock-in period of 5 years. You are free to withdraw your money once this lock-in period is over. But as ULIP too is a long-term life insurance product, one should remain invested throughout the policy tenure to generate higher returns.
Making the Decision
Deciding which one is better depends on your expectations from a policy. Though both the plans offer life coverage, one is aimed at long-term savings while the other focuses on long-term wealth creation. However, the higher returns potential of a ULIP comes with a higher level of risk too.
Now that you know the differences between the two, it shouldn’t be difficult for you to choose. If you are still unable to decide, you can contact a reputed insurer, and they will assign an insurance expert to help you make the decision.