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.

Objective

It is solely an insurance plan offering financial protection.

It allows both investment and insurance coverage.

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

FAQs About ULIP and Traditional Insurance Plans

Do traditional insurance plans offer tax benefits? up-arrow

Yes, you can get a tax benefit on traditional insurance plans under Section 80C of the Income Tax Act. However, you should check the criteria that are mandatory to fulfil to stand eligible for this exemption.

Who regulates ULIP and a traditional insurance plan? up-arrow

The Insurance Regulatory and Development Authority of India (IRDAI) regulates the ULIP and traditional insurance plans. They set the regulations regarding various plans and ensure that the insurers strictly adhere to them.

Can you withdraw money from ULIP before the end of your tenure? up-arrow

Yes, you have the flexibility of partially withdrawing money from the ULIP funds before the end of your policy's tenure. For this, you will not have to pay an additional amount. However, you cannot withdraw during the lock-in period of ULIP.

How long does a traditional insurance plan provide coverage to policyholders? up-arrow

Usually, a traditional insurance policy stays valid till a policyholder turns 99 years of age. So, if he or she dies before that period, the nominee can raise a claim to this plan. However, on outliving the tenure, the policy lapses and you will have to purchase a new one for financial protection.

Can you surrender a traditional insurance plan before the end of its tenure? up-arrow

Yes, you can surrender your traditional insurance plan before the end of its tenure. However, in such situations, you will be eligible to receive only the paid-up value of the plan.