Term, ULIP, and endowment plans – Know the difference

While earning, most individuals lay their primary focus on income growth. Creating an efficient financial plan to find the financial instruments that balance risk and reward is important. With a variety of financial tools available out there, it’s difficult to determine which one to buy or invest in. For choosing life insurance also, there are a plethora of options. Most people usually buy the popular term insurance, ULIP, and endowment plans.

What is a term plan?

Term insurance is simple life insurance with no other external components. It is a cost-effective type of term insurance. When you buy a term plan, you get a life cover for a fixed period. Since the life cover is provided for a specific tenure, term insurance offers huge coverage for lower premiums than other insurance. You can get several term insurance tax benefits when you pay premiums.

What is ULIP?

Unit Linked Insurance Plan (ULIP) is a dual instrument that combines life insurance and investment. You pay premiums when you buy a ULIP, similar to any other life insurance. However, the premiums here are partially allocated to provide you with a life cover and partially invested in funds of your choice.

What is an endowment plan?

Similar to ULIPs, the endowment plans also offer dual benefits as they have a savings component. Along with life insurance, you also save money for your long-term goals. Within the duration of your endowment plan, your nominee will receive death benefits in case of your unfortunate demise. While surviving the policy, you will receive the maturity amount and any bonus if accrued.

What is the difference between them?

Once you understand what a term plan, ULIP, and endowment plan are, it becomes easy to understand the difference between them. Here are the key factors where they are different:

Purpose of the instrument

You can opt for huge coverage at a low premium. When you buy a term plan online, you get life insurance alone. When you buy a ULIP or endowment plan, you also have a savings component and life cover provision. This increases the cost of these products since the charges to manage your funds are also involved.

Returns

You do not get any returns for term insurance since it is purely life insurance. The returns on ULIPs depend on how your invested funds are performing. Usually, equity-based ULIPs offer high returns compared to returns earned from endowment plans. Also, a ULIP allows tracking your portfolio and changing your fund allocation, making it more flexible than endowment plans.

Premium

The premium amount is one of the crucial factors to consider while buying any life insurance plan. With term insurance, since it is pure life insurance that offers coverage for a fixed tenure, the premium is quite low compared to its counterparts. The tips of ULIPs and endowment plans are usually high since they have dual components.

Coverage

If you are looking for life insurance that offers huge coverage for low premiums, buy an online term plan. They offer one of the most cost-effective plans and several term insurance tax benefits you can opt for. For choosing coverage for a ULIP or an endowment plan, the premiums are usually high if you want sufficient coverage.

Charges associated

There are several charges associated with a ULIP since there are admission and management charges on both ends, funds, and insurance. The same goes for endowment plans since there are two components involved, and the costs are much more than a term plan. When you choose an online term plan, the costs involved are significantly lower than that of ULIP or an endowment plan.

After knowing the differences above, it is important to evaluate which of these life insurance types meets your needs on an individual level. This is because there is no size fits all for life insurance. You need to choose the one that serves your purpose.