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Introduction

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.

Comparison Between ULIPs and Traditional Plans

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

Conclusion

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.

FAQs on ULIP vs Traditional Plan

  • ✔️What is the difference between ULIP and traditional insurance plans?

    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.

  • ✔️Does ULIP offer tax benefits?

    Yes, ULIPs offer tax benefits under Section 80C of the Income Tax Act.

  • ✔️Does a traditional plan offer tax benefits?

    Yes, a traditional plan provides tax benefits under Section 80C of the Income Tax Act.

  • ✔️Is ULIP a good investment option?

    Yes, ULIP is a great tax-saving investment option for someone who wants the benefits of both insurance and investment.

  • ✔️Do traditional insurance plans offer a higher insurance amount than ULIPs?

    Yes, since only a part of your premium goes for insurance in ULIPs, a traditional insurance plan offers a higher insurance amount.

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