ULIP versus Traditional life insurance policy

Traditional Life Insurance Policy

           

These plans invest your money in very low risk. Since there is very low risk the returns are too low. It can be

Money Back Plan :

• You will get a percentage of sum assured at regular time of interval, instead of getting lump sum amount at the end of the term.
• It gives the benefit of both death and survival along with benefit of liquidity.
• In case of death of insured ,nominee will get the entire sum assured and the survival benefits are not deducted.

Term Plan:

• It provide protection against a specific period of time in case of death of policy holder the death benefits paid by company to the nominee.
• The insured is however not entitled to get benefit if he outlives the term period.
• It provides a large amount of insurance sum assured only at very low price.

Endowment Plan:

• An endowment policy is essentially a life insurance policy which, apart from covering the life of the insured, helps the policyholder save regularly over a specific period of time so that you will be able to get a lump sum amount on the policy maturity in case survival the policy term.
• It offer death as well as maturity benefits.
• The premiums payable for endowment plans are more expensive than term plans.

Whole life Plan:

• Whole life insurance, as it's clear by name, provides protection for the whole life.
• These policies protect the insured as long as they live or the policy remains effective.
• In the event of the death of the insured, these plans help with a lump sum amount as the death benefit to loved ones of insured to take care of pending medical expenses, funeral expense, repay the financial debts as well as other essential benefits.
• These plans provide a cash value that grows every year at a specific interest rate.

ULIP

• Unit linked plans offers protection and saving combination.
• Risk lies with policy holder.
• It is considered as high risk high return plan.
• Some part of it invested in market capital fund like equity, debt and balanced funds.

How they are similar and different to each other?

Traditional

1. It offers multiple benefits inform of risk, return and safety.
2. Risk lies with insurer.
3. Traditional plans are low risk with low return
4. In traditional plan partial withdrawal from the fund is not possible
5. Traditional plans are for low to medium income bracket policy holder who cannot afford risk.
6. Traditional plans are ideal for midlife policy holder age 40 above.
7. In a traditional insurance product, transparency  is not there about the how much they allocated the charges  .

     

     ULIP

1. Unit linked plans offers protection and saving combination
2. Risk lies with policy holder
3. Unit linked plans are considered as high risk high return plan.
4. In ULIP partial withdrawal from the fund is possible subject to conditions.
5. Unit Linked plans are ideal for high income bracket policy holder who have appetite for risk.
6. ULIP are ideal for young policy holder age less than 40 year.
7. In a unit-linked life insurance product, before investing an individual should know the various charges upfront, namely:

              Premium Allocation Charge
•             Fund Management Charge
•             Mortality Charge
•             Policy Administration Charge
•             Surrender/Discontinuance Charge
•             Switching Charge
•             Redirection Charge
•             Partial Withdrawal Charge 

Advantages and Disadvantages associated with ULIP and Traditional Policy

In traditional policy don't go with the plan with expectations of high return .Generally it will give 3% to 6% annual return.

In case of emergency in traditional policy if you want to withdraw some amount of money surrender value is extremely low, in most of the case you will get only one third of the premium which you have paid. Lack of transparency you don't know what kind of charges are deducted.

Do remember every year you should have capability to pay premium otherwise its a huge financial loss.

On the contrary in ULIP its a investment for long term. Instead of investing lump sum amount at regular investment you can invest some fixed sum at regular investment when you do this ,you can buy more units when price are low and less units when price are high.

Hence, the average amount you  spent on units can do Rupee cost averaging ,which would tend to buy more units on less price.

Expert fund manager manage your money so they know well about changes in economic condition and policies effect interest rate and equity market expert understand this and manage money accordingly.

Inbuilt financial protection for family offer life cover as well so in case any certainty family will be secure with financial protection.