Buying life insurance is an important decision, which can ensure financial stability as well as future wealth creation. In a populous and low mid-income country like India, where there is little social security to fall back upon in times of financial duress, the life insurance penetration remains below half of the global average at 2.7% of the GDP. So why do nearly 99 crore Indians continue to live without any coverage against financial shocks that life may bring?
One of the major reasons behind this shallow depth of the life insurance coverage in India is the general thinking that such insurance is solely for the purpose of income replacement. At a time when our primary focus remains income growth, many of us forget to find the right balance between risk and stability. However, the Unit Linked Insurance Plan is an insurance product which helps you reach this equilibrium between income stability and life goals.
ULIPs bring quite a few things to the table which traditional life insurance policies – such as term plans and endowment plans – miss out on. A prudent mix of traditional plans and unit linked insurance plans is recommended, but it is necessary to understand the key differences between them to make well-informed decisions about your financial objectives.
To begin with, unit linked insurance plans are a combination of insurance and market-linked investment in a single product, and hence ULIP returns are market-linked. On the other hand, traditional plans only provide fixed returns in case of death or at the maturity of the term.
Choice of investment
In term and endowment plans, you are given no choice as to how money is being invested and get lower returns. With ULIPs, the policyholder has the liberty to calibrate investments which can range between debt funds and equity funds and has the choice of switching funds depending on the market outlook and fund performance. Independent investment research agencies like Morningstar and CRISIL rate the funds at Finserv MARKETS as some of the best in the market.
Unlike term and endowment plans, ULIPs give you the option of investing 100% of your premium and further allocating the additional amount to your policy. You can choose investment strategies based on your requirements such as child plan, retirement and other investment goals.
Unit linked insurance plans also give greater flexibility over the withdrawal of money when compared to traditional plans. You can withdraw your money after the five-year lock-in period with no surrender penalty and you will get the market value of your investment. On the other hand, there are a lot of restrictions on such withdrawals in traditional and often you have to pay high surrender charges to the insurer. It also provides the choice to withdraw part of the investment so that you can keep the policy alive, but this is not available in endowment plans.
In term plans, there is no maturity benefit other than life coverage unless the insured has chosen a return of premium plan, while in endowment plans, the policyholder also gets the sum assured at the time of maturity. However, if you choose to buy a ULIP with Finserv MARKETS, as an insured, you can redeem the units at the then prevailing market prices, with returns as high as 25% over a five-year period, along with the security of life coverage.
In term plans, there is no transparency on the charges and the investment allocation, while with endowment policies you have no option to track individual portfolios as the premiums are invested in a common fund.
Unit linked insurance plans allow you to keep a track of the portfolio regarding the percentage of the premium that is invested along with the charges levied. In fact, at Finserv MARKETS ULIPs come with no allocation charges and you can easily buy them online.
In a nutshell, Unit linked insurance plans give us the freedom to invest according to our financial needs and ability. Apart from an assured a life cover for the policyholders, ULIPs offer market-beating maturity benefits. It can, therefore, be an ideal investment option for your long-term financial goals and can be an anchor against uncertainties of life.
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