Understanding ULIPs and Endowment Plans Selecting the Right Financial Tools to Build Wealth for the Future
Table of Content
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Today, everybody understands the importance of investing for the future. From saving for retirement to building a corpus to pay for a home, we must find investments that help us meet our financial goals. You might want to consider Unit-Linked Insurance Plans (ULIPs) or Endowment Plans to help you meet your financial goals. Both offer insurance coverage with added benefits. So, how can you choose the right plan for your needs? Let's better understand both options to help you make an informed decision.
What Is a ULIP?
ULIPs are financial products that combine insurance with investment. A part of the premium goes towards providing insurance coverage, and the rest gets invested in various funds. Your ULIP returns depend on the performance of the funds you invest in, such as equity, debt, or a combination of both.
What Is an Endowment Plan?
Endowment plans are traditional insurance policies that offer an additional savings component. These plans have a fixed term that pays out a lump sum equal to the sum assured on maturity. They provide fixed and guaranteed returns, so you know exactly how much you will get when the term lapses. The beneficiary receives the sum assured if something happens to the policyholder during the policy term, following which the policy ends.
Understanding the Benefits of ULIPs and Endowment Plans
Let's better understand the benefits of these plans.
Insurance Coverage
Both ULIPs and endowment plans offer life coverage for the policyholder, providing their loved ones with financial stability and security.
Returns
Your ULIP investment offers market-linked returns. ULIPs have the potential to provide higher returns, but they depend on market conditions.
Endowment plans offer a guaranteed amount on maturity. Policyholders can opt for a policy with profits to get the sum assured plus accrued bonuses on maturity. The returns from endowment plans can be lower than your ULIP returns.
Lock-in Period
ULIPs have a minimum lock-in of five years. They encourage disciplined investment, helping you build a corpus in the long term.
Endowment plans come with a lock-in period that ranges from three to five years, depending on the selected policy.
Investment Decisions
ULIPs allow policyholders to make investment decisions. You choose the fund allocation and can make switches over time to take advantage of market conditions.
Endowment plans do not allow policyholders to make any investment decisions.
Transparency
You can track your fund performance and view your allocation when you invest in a ULIP.
Endowment plans do not provide information about the investment portfolio. However, the maturity benefit is a guaranteed return, so policyholders know what to expect.
Withdrawals
Policyholders can partially withdraw funds from their collected ULIP corpus in financial emergencies. The withdrawals are tax-free and help provide liquidity in times of need.
Policyholders face restrictions and penalties when they withdraw funds from endowment plans.
Benefits of Investing in a ULIP
When you want high returns to help you meet long-term financial goals, ULIPs might be a good option. Let's see how you benefit when you invest in a ULIP.
Flexibility
ULIPs offer investment flexibility. You can choose which funds to invest in based on your financial goals and personal risk appetite. You can also select the sum assured amount based on your family's financial requirements.
Tax Benefits
ULIPs offer multiple tax benefits. The investment amount, partial withdrawals, maturity benefit and sum assured payout all enjoy tax deductions and exemptions under various sections of the Income Tax Act of 1961.
Long-Term Investments
ULIPs have a lock-in period of five years, making them ideal for long-term investment goals. Over time, it helps you develop a disciplined approach to saving and investing, which can improve your overall financial health.
Transparency
ULIP investors can track their fund performance and change the investment allocation to maximise returns. These plans provide complete transparency.
ULIPs are a good investment option if you want market-linked returns, transparency and flexibility. Before selecting a ULIP, ensure you list your financial goals and assign each a timeline. Evaluate your risk appetite and choose funds accordingly. Once you know what you're working towards, you can use your ULIP investment to help you meet your goals.
Related Article
- How to Choose the Best ULIP Plan in India?
- All You Need to Know About Insurance Types, Portability & Its Benefits
- Absolute Returns in ULIPs: Everything You Need to Know
ARN - MC/04/23/1733
Term Plan Articles
Investment Articles
Savings Articles
Life Insurance Articles
Tax Articles
Retirement Articles
ULIP Articles
Subscribe to get the latest articles directly in your inbox
Health Plans Articles
Child Plans Articles
Popular Calculators
Here's all you should know about life insurance.
We help you to make informed insurance decisions for a lifetime.
HDFC Life
Reviewed by Life Insurance Experts
HDFC LIFE IS A TRUSTED LIFE INSURANCE PARTNER
We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.
The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.
Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.
Popular Searches
- Term Insurance Calculator
- Investment Plans
- Investment Calculator
- Investment for Beginners
- Best Short Term Investments
- Best Long Term Investments
- 5 year Investment Plan
- savings plan
- ulip plan
- retirement plans
- health plans
- child insurance plans
- group insurance plans
- income tax calculator
- bmi calculator
- compound interest calculator
- income tax slab
- Income Tax Return
- what is term insurance
- Ulip vs SIP
- tax planning for salaried employees
- HRA Calculator
- Annuity From NPS
- Retirement Calculator
- Pension Calculator
- nps vs ppf
- short term investment plans
- safest investment options
- one time investment plans
- types of investments
- best investment options
- best investment options in India
- Term Insurance for Housewife
- Money Back Policy
- 1 Crore Term Insurance
- life Insurance policy
- NPS Calculator
- Savings Calculator
- life Insurance
- Gratuity Calculator
- Zero Cost Term Insurance
- critical illness insurance
- itc claim
- deductions under 80C
- section 80d
- Whole Life Insurance
- benefits of term insurance
- types of life insurance
- types of term insurance
- Benefits of Life Insurance
- Endowment Policy
- Term Insurance for NRI
- Term Insurance for Women
- Term Insurance for Self Employed
- Benefits of Health Insurance
- Health Insurance for Senior Citizens
- Health Insurance for NRI
- Best Term Insurance Plan for 1 Crore
- personal accident insurance
- Annuity Calculator