Experiencing ups and downs in life are a common occurrence. Even though the downs may seem daunting, you can take care of the financial stress with the help of an insurance policy. It is an amazing way to ensure the security of your loved ones from unforeseen events. The insurance policies provide the policyholder or their beneficiaries with a sum assured in an unfortunate event.
Among the multiple life insurance policies available in the market, some plans provide the policyholder with insurance coverage and the ability to build wealth. Some of the most preferred plans that provide these features include endowment plans and ULIPs. But how do you decide between the two?
What are Endowment Plans?
Endowment life insurance or, simply, endowment plans are life insurance policies designed to provide a lump sum after a predetermined term or to the beneficiaries at the time of the policyholder’s demise. This plan also provides a payout in the event of a critical illness. Through these one-time premium plans, a policyholder can get insurance coverage along with the advantage of savings. Endowment plans help an individual save regularly over a particular time period to get a lump-sum amount when the plan matures.
If the policyholder survives this guaranteed term life insurance plan’s tenure, they are provided with the maturity amount. If they pass away during the policy’s tenure, their beneficiaries will get the death benefit. These life insurance plans with guaranteed returns are great for building a financial cushion for the future to meet one’s short and long-term financial goals.
What are ULIPs?
ULIPs or ‘Unit Linked Insurance Policies’ are insurance plans that allow you to build wealth and get life insurance coverage along with it. In these plans, a portion of the premiums are allocated towards life insurance and the other half is used as an investment in different market-linked instruments. The instruments chosen here are generally debt, equity or sometimes a mixture of both.
The returns from these investments will depend on the investment instrument chosen by the policyholder. These plans also allow individuals to switch between the chosen instruments mid-way through the plan’s tenure.
Which One Should You Choose?
To understand which plan would be an optimal option for you, you must consider the differences between the two and select the one that fits your requirements.
The differences between the two plans are listed below:
- Endowment plans are saving plans, and ULIPs are insurance/investment plans.
- ULIPs come with the ability to decide on the investment option, whereas endowment plans don’t.
- Through ULIPs, you can easily track your investment portfolio. However, you cannot do the same with endowment plans, as they do not involve an investment portfolio.
- In endowment plans, the policyholder gets the sum assured along with the bonuses if any. In ULIPs, they get units of their investment at the prevailing unit prices.
- Endowment plans do not allow you to make any changes to the policy. ULIPs offer you the ability to switch between investments.
- Endowment plans offer the policyholder a guaranteed fixed amount. However, the returns from ULIPs will depend on the instrument’s market performance.
If you’re in a tough position where you have to decide between the two, you must go through the differences, analyze your requirements and select the one that matches it.
ULIPs are great for people with high to medium risk appetites as the returns are linked to the market. The invested money is subjected to market volatilities, and the returns will be dependent upon the performance of the market.
People with low-risk appetites that prefer the assurance of steady and guaranteed returns over high returns should opt for endowment plans. As these plans are not linked to the market, the returns are guaranteed.
Endowment life insurance plans are insurance plans that provide assured returns along with insurance coverage, and ULIPs are insurance cum investment plans that provide insurance with market returns. Selecting a plan between the two would highly depend on the policyholder’s financial requirements and risk appetites. If you’re looking for a plan that will offer you high investment returns with high-risk investments, you can opt for ULIPs. However, if you’re looking for fixed returns from your policy that will help you achieve your long-term financial goals, then opt for endowment plans.