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ULIP and Traditional Plans - Detailed Comparison

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ULIP and Traditional Plans - Detailed Comparison
November 07, 2023

Insurance plans can be distinctly divided into Unit Linked Insurance Plans (ULIPs) and traditional plans. Before making a decision whether to opt for a traditional insurance policy or a ULIP, an investor has to understand the principles and the way both these financial instruments operate.

Comparison between Unit Linked Plans and Conventional Plans

Point of Difference

Unit Linked Insurance Plan 

Conventional Plans 

Description

Unit Linked Insurance Plans offered by insurance companies allow policy holders to direct part of their premiums into different types of funds (equity, debt, money market, hybrid etc.) Here the risk of investment is borne by the policyholder.

Conventional Plans are traditional life insurance plans. They usually invest in low risk return options and offer guaranteed maturity proceeds along with declared bonuses.

Flexibility of investment

ULIP gives you flexibility to invest as per your risk profile, financial commitments and convenience. You can choose to invest either in equity, or in debt or in hybrid fund and even change your investment strategy.

These plans do not allow you to choose investment avenues. Your funds are invested as per the strategy and discretion of the company.

Transparency

Most Unit Linked Insurance Plans allow you to track your portfolio. They also regularly intimate regarding the percentage of the premium that is invested along with the charges levied. You are also kept informed about the value and number of fund units that you hold.

Your premiums are invested in a common 'with profits' fund and therefore you cannot track your individual portfolio.

Maturity benefits payout

At the time of maturity you redeem the units collected at the then prevailing unit prices. Some plans also offer you loyalty or additional units annually or at the time of maturity.

At the time of maturity you get the sum assured plus bonuses, if applicable in the plan.

Partial withdrawal

Unit Linked Insurance Plans allow you to make withdrawals from your fund, provided the fund does not fall below the minimum fund value and subject to other conditions.

Conventional plans do not allow you to withdraw part of your fund. Instead, some policies offer you the facility to take a loan against your investment.

Switching options

Available. You can change your investment fund decision by switching between the funds as being offered by the policy.

Not available since the investment decision is taken by the insurance company.

Charges structure

Unit Linked Insurance Plans specify the charges, under various heads.

 

These plans do not specify the charges involved.

Single premium Top-up

Available. The single premium top-up facility allows you to invest an extra amount over and above your regular premiums in your unit linked plan.

Available. The single premium top-up facility allows you to invest an extra amount over and above your regular premiums in your unit linked plan.

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ARN: ED/12/19/17049

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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