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ULIPs and Traditional Plans: Differences That Matter

Choosing between Unit Linked Insurance Plans (ULIPs) and traditional insurance policies requires understanding their distinct features and benefits. While ULIPs offer investment flexibility and market-linked returns, traditional plans provide guaranteed benefits with lower risk. This guide breaks down the key differences in maturity benefits, withdrawal options, and charges, helping you make an informed choice based on your financial goals.

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ULIP and Traditional Plans - Detailed Comparison

ULIP and Traditional Plans - Detailed Comparison
November 07, 2016

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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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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Here's all you should know about ULIP insurance.

We help you to make informed insurance decisions for a lifetime.

ULIP or SIP – Which Is a Better Investment Option?

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ULIP Taxation on Maturity: Explore tax benefits and regulations under Section 80C and 10(10D) of the Income Tax Act, 1961 for ULIPs. Make informed decisions for financial growth.

ULIP Taxation: What Is The Taxability of ULIP On Maturity?
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Disclaimer

#The above tax benefits are subject to conditions specified u/s 80C and u/s 10(10D) of the Income tax Act, 1961. The afore stated views are based on the current Income-tax law. Tax Laws are also subject to change from time to time. The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

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.

For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale. 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.

18. Save 46,800 on taxes if the insurance premium amount is Rs.1.5 lakh per annum and you are a Regular Individual, Fall under 30% income tax slab having taxable income less than Rs. 50 lakh and Opt for Old tax regime.

** The past 5 year fund performance of HDFC Life Discovery Fund (SFIN: ULIF06618/01/18DiscvryFnd101) as on 30th November 2024. The benchmark taken into consideration here is is Nifty Mid Cap 100 which as a return of 26.77% as on 30th November 2024. HDFC Life Discovery Fund is available with HDFC Life ULIPs which comes with a life cover. Please note past fund performance is not indicative of future performance.

ARN: ED/12/19/17049

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