Know the difference between Endowment Plans, Term Plans, and ULIPs

These days, insurance plans are not only a tax-saving option; rather, they have become an integral part of your financial planning and strategies. People are now purchasing insurance products to get benefitted in multifarious ways. Insurance policies allow you to lead a healthy and worry-free life by supporting your family members in a healthcare emergency, offering financial security to your loved one, protecting you from uncertainties, and nurturing financial growth. Endowment plans, term plans, and ULIP plans are the three most common insurance products that are available in the market. Each one of them has its upsides and downsides and can give you the utmost protection against various uncertainties. But customers often get confused while purchasing these products. Because they can’t decide which one will be the best with their evolving needs?

According to the survey by the PHD Research Bureau (in 2014) on insurance awareness and knowledge of Indians, nearly 50% of the population doesn’t have adequate knowledge about various insurance products. Here, we are going to discuss the difference between term insurance and endowment insurance, and ULIP plans.

What is an Endowment Plan?

An endowment policy is a conventional life insurance plan that comes with death and maturity benefits. This can also provide coverage for accidental death and disability due to an accident. In the case of the death of the policyholder, the beneficiary will get the sum assured amount. But if the policyholder survives during the tenure period, then he/she will be blessed with the maturity amount plus any bonus that is mentioned in the endowment plan. An endowment policy means you are getting life coverage and savings options for your retirement, children’s higher education, marriage plans, or a house.

Features and Benefits of an endowment policy are,

• This is a flexible insurance plan that comes with various top-up plans according to your needs. You can access additional riders as per your requirements.
• The lock-in period is 2-3 years (though it depends on the plan and the premium rate)
• Zero transparency
• Offers guaranteed return
• Since this insurance plan offers life coverage and savings option; hence the premium rate is higher
• Tax exemption under section 80C and 10(10D)
• In the case of financial urgency, you are eligible for a loan against your policy.

What is a Term Plan?

Term insurance is the most budget-friendly and simplest life insurance product. It offers life coverage for a specified period during the policy term. If the policyholder expires during the policy period, the sum assured amount will be given to the beneficiary either in a lump sum or as monthly pay-outs. So, term insurance plans are the utmost choices that offer you maximum coverage at a minimal premium. An 18-year-old non-smoking male can purchase a term life insurance plan with a life cover of 1 crore by just paying Rs.14 per day till the age of 75. A term plan offers you tax benefits under sections 80C and 10(10D) of the Income Tax Act.

Now consider the term plan vs endowment plan on various parameters.

• Term insurance can offer more financial protection to your family as compared to an endowment plan. This is the prime difference between the term plan and the endowment plan.
• But a term plan doesn’t offer savings options like an endowment plan. This is another difference between term insurance and endowment insurance. So, term plans are not at all flexible.
• If you are trying to understand the difference between term and endowment policy, then you should consider the lock-in period. A term plan doesn’t have a lock-in period like an endowment plan.
• When we are discussing the term plan vs endowment plan, how do we ignore the return options for both plans? The term plans offer no assured return except for TROP, but an endowment plan offers a guaranteed return.
• Since a term plan offers only a death benefit; the premium rate is comparatively low as compared to an endowment plan. This is another pivotal factor that you can’t ignore while considering the term insurance vs endowment policy plans.

What are Unit Linked Insurance Plans(ULIPs)?

A ULIP insurance policy is a hybrid and intricate policy that offers life coverage to the policyholder along with tax-saving and wealth creation options. Under this type of insurance plan, a part of your premium is considered life insurance while the remaining is invested in the capital market.

Top features and benefits of ULIPs

• This is the most flexible plan among the three because it permits you to modify/alter the proportion allocation as per your financial needs. This is the main point that you can’t shun while comparing ULIP vs term insurance plans.
• This insurance plan comes with a 5-year compulsory lock-in period
• You can track your investment portfolio at your convenience; thus, this plan is extremely transparent
• Both endowment plans and term plans offer you guaranteed returns in the insured policyholder’s case or after the plans’ maturity. But ULIPs don’t offer any guaranteed return to policyholders. You may get a higher return because these plans are dependent on the market condition and the fund’s performance.
• The premium amount is the highest for this insurance plan among all the three because it comes with investment as well as insurance features.

Endowment plans, term insurance plans, and ULIPs have their own pros and cons. It’s an arduous task for policy buyers to select and opt for the best life insurance products that will give them the utmost benefits based on their investment goals, financial conditions, and risk appetite. Before investing a single penny, you must go through the policy terms and conditions to understand what things are covered under your plan. You should do some market research to acquire more information about various insurance products and their benefits. If required, you may take help from a deft financial expert for selecting the right insurance product for your needs.