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 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 | IRDAI | IRDAI |
| 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.
