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ULIPs vs Traditional Plans

The most common question which arises while buying an Insurance policy is, ‘Should we go for Unit Linked policies or Traditional policies?

By: Abhishek Kumbhar | 
Read Time: 1 minute, 53 seconds | 
Last Updated: 25-02-2022
ULIPs vs Traditional Plans

Traditional Plans

Traditional plans are non-linked, non-participating guaranteed savings products. They typically include Endowment Plans, Child Plans, Pension Plans, Term Insurance Plans, and Money Back Plans. These plans are devised to offer multiple benefits like Risk cover, Financial security, and safety.

Unit-Linked Insurance Plans (ULIP)

ULIPs are market-linked insurance products. They were first introduced in India in 1971. They were devised to give dual benefits to the customers who were ready to take risks in exchange for higher rewards. It is an integration of market-linked investment and pure insurance in a single insurance plan.

Here are some key features of both plans which will help you make an informed decision on which plan better suits your portfolio and your future needs.
 
Parameters Traditional Plans ULIPs
Type Conventional guaranteed product Market-Linked product
Risk Low Medium to High (Depending on Plan)
Security High Medium to Low (Depending on Plan)
Returns Fixed returns Depending on Equity
Switching options Not Available (as funds are directly invested by the company) Available (You can change your investment funds as offered by the policy)
Partial Withdrawal Not Allowed Allowed
Top-ups Not Available Available
Objectives Financial security High risk, high rewards
Regulating Body IRDA IRDA
Tax Benefits Under 80C Under 80C
Transparency No transparency as an investment portfolio isn’t available. Highly transparent as an investment portfolio is available.
Lock-in Period Till maturity 5 years

Conclusion

If you’re a young individual looking for long-term investment and willing to take high risks for higher rewards, you should consider going for ULIP. But if you’re someone who prefers security over higher rewards, a traditional plan should be your go-to insurance plan.

As they say, Never keep all your eggs in one basket, just like that your investment portfolio should also be diversified. It is pretty evident that high risk instruments give higher returns and low risk instruments give lower returns. But investing only in either of the two can prove to be dangerous. Ideally, a good portfolio should contain components of both risk and security. This saves us from both the volatility of the market and sluggish return on investment. So, invest smartly! Our trained and certified advisors at MyInsuranceClub can help you select the best insurance plan suitable for your needs. 
 
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Abhishek Kumbhar
Abhishek Kumbhar is an Insurance Analyst with rich experience in the Finance Industry. With his extensive knowledge and exposure of the Insurance sector, he writes articles to provide insights about different aspects of Insurance.

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