In the insurance industry, there are several types of insurance plans offered to the customers. However, it is a wise call to learn the underlying premise of all such policies and see which option best fits your needs. Let us begin with understanding the general meaning of some of the most popular insurance plans.
- Endowment Life Insurance
Endowment life insurance is one of the most trusted life insurance policies taken by individuals. Its functions include acting as a life insurance policy and savings plan for the policyholder. This form of insurance encourages individuals to save a certain amount of money over a period of time and exit with a comparatively larger sum on maturity of the policy, given the policyholder survives the term. This is known as the maturity or survival benefit.
In the event the policyholder does not survive the term of policy, the insurer makes a payout to the nominees. This is known as the death benefit. Endowment life insurance helps to meet retirement goals apart from financial needs like buying a house, higher education, etc.
- Term Insurance Plans
When an individual is availing an insurance plan for a specified number of years i.e., a fixed term then it is regarded as term insurance. This type of term insurance is highlighted for its affordability as it does not come with survival or maturity benefits and is convenient to buy for almost anyone and everyone. The main advantage of a term insurance plan is to get death benefit cover at an affordable cost.
One of the prominent features of the term insurance plan is that the policies can be converted to permanent life insurance policies if your goals change in the future and you find the policy term of your term plan to not be enough. Insurance houses offer online term insurance calculators for free. You can use this term plan premium calculator to have a fair idea regarding the premium cost to be incurred.
- ULIP Plan:
ULIP stands for Unit Linked Insurance Plan and this type of insurance plan is multifaceted. The ULIP is a good combination of an investment and life insurance. A part of the premium is used towards the life insurance cover. The remainder is invested in financial instruments like equity and debt mutual funds. The ULIP is a relatively safe platform to rely on in case of emergencies.
Term Plans vs ULIP vs Endowment Plans
| Difference criteria | Endowment Life Insurance | Term Insurance | ULIPs |
| Type | Endowment life insurance plans offer a regular/traditional insurance plan including a death cover and maturity benefits. Additionally, it also supports disability due to accidents. | The single and foremost aim of term insurance policies is to provide support to the family members in case of unfortunate death of the policyholder (if within term period). This is the most cost-effective plan available in the insurance space. | ULIP plans support a hybrid model of insurance and wealth creation. It divides the premium cost into two aspects – first is utilised for life insurance whereas the remainder is invested in financial instruments. |
| Pliability | Endowment life insurance can be considered as moderately flexible. It offers different top-up plans, which can be used to enhance coverage. | Term insurance is not quite flexible as the sole aim is to provide financial protection in the event of the policyholder’s demise. | ULIPs are the most flexible amongst the three plans as one can call out the proportion as suitable to their requirement. |
| Lock-in period | The lock-in period of the policy is dependent on the chosen plan and its subsequent premium payment tenure. Generally, it ranges between 2 to 3 years. | No lock-in period. | ULIPs have a mandatory 5-year lock-in period. |
| Returns | Endowment life insurance provides guaranteed return. | Apart from TROP (Term Plan with Return of Premium) there are no assured returns. | The returns are market-driven and based on the fund’s performance. |
| Premium | Owing to savings and life insurance features, premium cost is comparatively high. | Only death benefits are offered, hence, the premium cost is generally low. | The premium cost is the highest in ULIPs due to the combination of the insurance and investment model. |
All insurance products come with their fair share of pros and cons. It is up to your long-term investment goals and risk appetite that you ought to find the most suitable plan for you and your loved ones. A thorough research about all products before making an investment goes a long way to get maximum advantage.