Every individual plans investments based on their unique financial goals. Depending on your personal needs, you may invest to earn good returns, secure your future, or create wealth to help you fulfil your dreams. Irrespective of your goals, there are two types of insurance plans that you can use: Unit-Linked Insurance Plans or Traditional Plans. Both come with their own benefits, hence, it is imperative to understand the difference between ULIPs and traditional plans. This will help you make an informed decision.
Let’s compare ULIP vs traditional plan, so you can identify the right plan for yourself.
The below table will help you determine the entire ULIP vs traditional plan debate better.
Parameters |
ULIPs |
Traditional Plans |
Type of scheme |
Insurance-cum-investment plan |
Purely an insurance plan |
Objective |
To offer insurance as well as long-term investment benefits |
To offer fixed return for a long period |
Best suited for |
Someone who wants a life cover along with good returns in the long run |
Someone who wants security against unforeseen threats as well as fixed returns |
Fund Switching |
Allowed |
Not allowed |
Lock-in Period |
5 years mandatorily |
Until maturity |
Tax Benefits |
Tax exemption available under Section 80C of the Income Tax Act |
Tax exemption available under Section 80C of the Income Tax Act |
Regulatory Body |
IRDAI |
IRDAI |
Returns |
Market-linked returns |
Fixed returns |
Charges |
Mortality charges, fund management charges, partial-withdrawal charges, insurance premium allocation charges, fund switching and administrative charges, and surrender charges are levied |
Mortality charges and premium allocation charges are levied |
Premium Allocation |
The premium amount is divided between life cover and investments |
The premium amount is divided between insurance cover and debt funds |
Systematic Investment Plan |
Yes |
No |
Flexibility |
A highly flexible plan |
Not a flexible plan |
Security |
No security |
Highly secure |
Now that you know what is the difference between ULIP and traditional plans, you can make an informed decision based on your personal financial goals. While traditional plans are highly secure, ULIPs offer higher returns. As with any investment opportunity, make sure you do a little research before you decide on the best ULIP plans or endowment plans to fulfil your needs and requirements.
The most basic difference between a ULIP and a traditional plan is that ULIP is flexible in nature, whereas the latter isn’t. Additionally, ULIP offers higher returns as compared to traditional plans.
Yes, ULIPs offer tax benefits under Section 80C of the Income Tax Act.
Yes, a traditional plan provides tax benefits under Section 80C of the Income Tax Act.
Yes, ULIP is a great tax-saving investment option for someone who wants the benefits of both insurance and investment.
Yes, since only a part of your premium goes for insurance in ULIPs, a traditional insurance plan offers a higher insurance amount.