Simplifying Life Insurance in India
What is the Difference Between ULIP and Traditional Insurance Plan?
What is a Traditional Insurance Plan?
What is a Unit Linked Insurance Plan?
Difference Between ULIP and Traditional Insurance Plan
Furthermore, here are some tips that can help you select the best type of life insurance plan to cater to your needs perfectly.
Parameters |
Traditional Insurance Plan |
Unit Linked Insurance Plan |
Objectives of the Policy |
To offer financial assistance to a nominee in case of any unfortunate demise of a policyholder. |
To offer life cover as well as aid in wealth creation through investments. |
Type of Plan |
It is an insurance plus non market linked investment plan offering financial protection. |
It allows insurance coverage as well as wealth creation through market linked investment. |
Fund Switching Option |
Not available in this type of plan. |
Available in this type of plan. |
Target Individuals |
People who are looking for financial security for unforeseen situations as well as fixed returns from their investments. |
People who are looking for financial security for unforeseen situations as well as wealth creation. |
Lock-in Period |
Until maturity |
Only for five years |
Returns on Investment |
You can expect fixed returns from your investment in this type of plan. |
The returns from this scheme depend on money market fluctuations. |
Additional Charges |
Includes mortality charges and premium allocation charges |
Includes fund management charges, mortality charges, partial-withdrawal charges, fund switching and administrative charges, insurance premium allocation charges, and surrender charges. |
Premium Allocation |
The premium amount is divided between debt funds and life cover. |
The premium amount is divided between investments and life cover. |
Flexibility |
Not flexible at all. |
Highly flexible plan. |
Systematic Investment Plan |
Not available |
Available |
Security of the Plan |
Highly secured plan. |
Involves risks of losses. |
Tips to Select the Most Appropriate Life Insurance Plan
Below are some effective tips that can help you in selecting the most appropriate life insurance plan:
- Assess the coverage amount: Purchasing a policy that can provide substantial coverage to your nominee after your demise is imperative. This ensures that they will not have to approach others for financial help.
- Check the policy tenure: The tenure of a policy varies notably with the type of insurance plan. Hence, it becomes vital to check its term to decide if it matures at the right time. This helps you avoid buying a second policy after its expiry.
- Determine your insurance goals: Before purchasing a policy, you should determine your expectations from an insurance plan. Accordingly, you can select the appropriate plan to help fulfil your financial goals earlier.
- Go for a reputable insurer: Before finalising an insurer, it is important that you go through their market reputation. Also, determine their solvency ratio and claim settlement ratio to ensure that your nominee gets the money instantly on raising a claim.
- Check terms and conditions: The inclusions and exclusions of a policy vary notably with one another. Hence, thoroughly review them before purchasing to ensure that it offers coverage against all possible situations.
Pro tip: Consider buying life insurance at an earlier stage of your life for affordable premiums. This can help you save more and get extended coverage. Also, you can claim tax benefits to increase your returns from the policy.
Now that you have an idea about the difference between ULIP and a traditional plan, it will become easier to make a prudent decision regarding your investments. Moreover, you should also carefully study the plans beforehand to ensure that you make the best judgement about your finances.
Frequently Asked Questions
Do traditional insurance plans offer tax benefits?
Who regulates ULIP and a traditional insurance plan?
Can you withdraw money from ULIP before the end of your tenure?
How long does a traditional insurance plan provide coverage to policyholders?
Can you surrender a traditional insurance plan before the end of its tenure?
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.