Difference Between ULIP & Other Life Insurance
Having a life insurance policy is a big decision. It immediately impacts the future of your loved ones after your death. However, it might be confusing to choose a life insurance policy as there are so many different kinds available. A unique and increasingly popular form of insurance is the unit-linked insurance plan (ULIP). However, before buying a ULIP policy, it’s crucial to understand how it differs from other types of insurance. It functions differently than more conventional forms of insurance that one.
So, what is ULIP?
A financial product known as a ULIP combines investing and insurance. You pay premiums for your ULIP plan, just like you would for other types of life insurance. However, a ULIP’s provider uses a part of the premium as a protective blanket for your insurance. Then it invests the left balance in other funds. You can pick from a variety of funds depending on your risk tolerance. You receive the money promised after your policy has reached maturity. Moreover, the amount covered by your insurance, along with any other gains, is paid to your nominee in the worst-case scenario or after your death.
What distinguishes ULIP from other types of insurance?
A ULIP policy has a number of characteristics that set it apart from other types of life insurance. Here is a comparison of ULIPs and conventional life insurance policies based on many criteria:
What is the definition?
Typically, life insurance just gives you a life cover. In the event of your passing, it provides financial protection for your loved ones. However, the ULIP policy is more than just life insurance. It is an investment as well.
What are the different objectives?
Providing life insurance is typically the only goal of a basic life insurance policy. There is typically no investment component and the sum promised is fixed. But, the goal of a ULIP is to provide returns on your investment while protecting your loved ones.
The component of investment
Since ULIPs are investments, there are returns associated with them. Since it is directly impacted by market risks, the returns are not fixed. However, depending on the funds you select and how they perform, they may be high or low. You can use a ULIP return calculator to estimate these returns. Since there are no investments involved, the financial components of life insurance are set.
The purpose of the purchase
The sole objective of purchasing a standard life insurance policy is to provide financial security for your loved ones. It may be temporary or permanent. In contrast, a ULIP provides you with both family protection and investment profits. Moreover, to safeguard your family’s future, this has the dual purpose of assisting you in reaching your long-term financial objectives.
Flexibility
Traditional insurances lack flexibility. This could be because there is no investment and no flexibility in the policy. However, the ULIP is a very adaptable type of design. You can swap between various funds to receive the best possible returns. Additionally, ULIP plans allow for partial withdrawals when you need money.
Tax advantages and governing body
Tax advantages apply to ULIPs and conventional insurance. Sections 80C and 80D of the Income Tax Act of 1961 exclude the premiums you pay for a life insurance policy. Additionally, the amount paid out by life insurance companies to your nominees is tax-free. Both ULIPs and conventional life insurance are governed by the Insurance Regulatory and Development Authority of India (IRDAI).
Periods of Term and Lock-In
You have a variety of life insurance options. This includes both short and long-term policies. You can purchase long-term insurance that covers you for a year or more, as well as short-term insurance that covers you for a month. The decision lies in your hands to select the desired duration, which can range from a few months to a lifetime. However, ULIPs typically have a lock-in period of three to five years and are long-term investments.
Final words
The aforementioned distinctions set a ULIP apart from conventional life insurance policies. There is currently no optimum insurance kind for everyone. So, decide on the type of insurance you need based on the risks you want to incur. Additionally, it’s critical that the insurance you select is in line with your financial objectives.
