ULIP vs Endowment Plan – Which is Better Investment Option?

ULIP vs Endowment Plan – Which is Better Investment Option?

In India, the insurance companies offer different types of life insurance policies to suit the different needs of the people. Two of the most popular policies are ULIPs (Unit Linked Insurance Plans) and endowment plans. If you are a first-time insurance buyer, then it can be challenging to make the right choice. So, if you are wondering if ULIP is better than an endowment plan or vice versa, then you must know the difference between the two.

ULIP is a type of life insurance policy that combines the benefits of insurance and investment in a single instrument. When you pay the premium for ULIP, a part of the amount is used for providing insurance coverage. The remaining amount is invested in different money market instruments to generate returns for you.

Thus, ULIPs help you secure your family’s financial future against uncertainties and let you grow your capital. You can grow a sizeable corpus for your future needs like building a retirement home, paying the child’s education fees, etc.

On the other hand, an endowment policy provides fixed returns after the policy matures or upon the policyholder’s demise. If you outlive the policy period, then you get the maturity amount and the endowment bonus (if any).

In endowment plans, there is no risk of capital loss as the returns are not market-linked. However, the returns you get from such plans are not as high as ULIPs.

Why should you invest in ULIPs?

ULIP plan is a better investment option because of the following reasons:

  •     It gives you the flexibility to switch funds, i.e., you can switch your investment in equity funds to debt funds or vice versa, as per your changing life goals, risk-taking capacity, and market movement.
  •    ULIPs allow you to partially withdraw funds from the corpus after the mandatory 5-year lock-in period is over.
  •   You may choose the premium payment mode to suit your budget. You can either choose a single premium policy or pay the premium periodically.
  •   It gives you the flexibility to invest in different market-linked products like stocks, bonds, debt, and equity mutual funds. Thus, it has high returns potential in the long run.
  •     You can purchase riders by paying an additional premium and extending the coverage of your regular policy.

Why invest in endowment policy?

  •   Endowment plan offers assured returns on the maturity of the policy and upon the policyholder’s demise. The returns from the endowment plan are fixed and unaffected by the market performance. Thus, it is a much safer investment option than ULIP.
  •    If you have invested in a participation plan, then the insurance companies transfer a portion of the profit they earn to the policyholder in the form of bonuses. Throughout the policy term, you get a terminal bonus and a simple reversionary bonus.
  •     Typically, when you invest in an endowment plan for an extended period, like 10 years or more, you have better chances of getting high returns. Thus, it plays a vital role in assisting you to achieve long-term financial goals.

Both ULIPs and endowment plans are entirely different financial instruments and serve specific purposes. Thus, neither is better than the other. You can invest in a policy that best suits your financial needs.

For example, if you are looking for a long-term investment option that helps you grow your capital and don’t mind taking a little risk, then you can invest in a ULIP policy. In contrast, if you are looking for a more secured investment option that offers steady returns, then an endowment policy would be an ideal choice.

Whether you buy a ULIP or endowment policy, ensure that you get sufficient coverage and that the sum assured is big enough to cover your family’s needs for a few years after you are gone.

Read more about Unit Linked Insurance Plan: https://www.kotaklife.com/online-plans/ulip-plan

Sheri gill