If you are in the market for a life cover, there are various options available to you today. Some of the popular plans in the market are term life covers, ULIP plans, and endowment plans. Each of these plans is different from the other two, and each one may suit a different set of consumers.
When buying life insurance, it is ideal to know all you can about each type of plan, compare differences, and then make a decision. Let’s understand each of these plans and compare them with each other to understand the differences.
Term Life Insurance
Term plans are the option for those who want their life insurance plan to be simple and affordable. It is known to be one of the most no-frills plans. How do these plans work? When you buy these plans, you pay regular premiums (or a single premium) for the same. In return, the policy provider offers you a life cover. This works as a way for you to secure your family against unforeseen circumstances and ensure their financial stability.
The fundamental benefit of a term plan is the death benefit. However, you can enhance these plans using benefits offered by the insurance provider, or riders that you can pay for.
Another aspect of term insurance to remember is that it does not offer maturity returns unless you buy a ‘return of premium’ policy. Even in this case, you will get returns worth the premium you have paid into the plan. These plans can be bought for a minimum duration of 10 years and offer a life cover for as long as 65-75 years of age.
Who should buy term life insurance plans?
Term plans are ideal for you if you are looking for a simplistic design of life insurance. These plans are also known to be low-cost, which makes them suitable for people who do not want to spend a high amount on life insurance premiums.
Endowment Plans
An endowment policy is a life insurance plan with savings benefits. When you buy such a policy you are not only ensuring a life cover, but you are also creating savings for your future. When you buy an endowment plan, you can choose a term duration of as low as 10 years. This is a contract you enter with the insurance provider, where you pay the premiums and can expect death benefits as well as maturity benefits.
The maturity benefits of these plans can be used to create security for your future as well as that of your loved ones. Some insurance providers may also allow you to take a loan against this policy.
Who should buy endowment policies?
If you expect more than a death benefit from your policy, maturity benefits from an endowment policy are one of your options. It is the sort of policy that allows you to plan for a future with your family while also preparing them for financial emergencies. It is necessary to note that endowment plans may not be as affordable as term life policies. But you can use an endowment policy calculator to see how much sum assured can you get for the premium you can afford. Since these plans are not market-linked, the maturity returns are usually guaranteed benefits that you can factor into your plans.
Unit-linked Insurance Plans
ULIPs are the only ones among the three that offer market-linked investments alongside life insurance. The premium paid into ULIPs is divided into two parts – one is used to build your life cover sum assured, and the other is directed towards market-linked wealth creation.
The insurance provider will offer you a choice of funds to build your portfolio. You can choose based on your risk appetite. ULIPs are plans managed by professional fund managers, so the policyholder does not have to worry about managing their policy.
Who should buy ULIPs?
If market-linked investment is on your mind, but you also want a life cover alongside, ULIPs may be the right plans for you. These allow you to take advantage of two features within the same policy – life insurance and investment.
Comparing Term Life Insurance, Endowment Plans, and ULIPs
| Term Life Insurance | Endowment Plan | ULIP |
| Pure life insurance | Life insurance plus savings | Life insurance plus investment |
| No maturity returns; only death benefits | Guaranteed maturity benefits plus death benefits | Maturity benefits earned from market-linked investments plus death benefits |
| No risk associated | No risk associated | Prone to market risk |
| No lock-in period | No lock-in period | Policies usually come with a lock-in period of five years |
Before you buy any plan, remember that it is important to take your goals and means into consideration. Choose on the basis of what you seek, as well as what the plan has to offer. While term plans and endowment plans come with no risk, ULIPs are plans that are slightly prone to market vulnerabilities. Know that you may also choose to have more than one plan at the same time.
