Are you considering an insurance product for your portfolio? If yes, then there will naturally come a choice between either a ULIP plan and traditional life insurance. So, which one will you choose? Here is a basic guide that you should keep in mind.
ULIP Plans- Knowing More About Them
If you are investing in a ULIP plan, then here are some key things worth knowing about.
- ULIPs, or unit-linked insurance plans, combine insurance and investments
- You can get life coverage for the policy tenure, while choosing between equity, debt, and hybrid funds to invest in for future returns
- There are risks linked to market returns, although you can reap good rewards over a longer duration
- The premiums are allocated majorly towards investments after charges such as fund management, policy administration, and mortality costs are deducted, while a portion is kept for insurance.
- You can get tax benefits on your premium payments under Section 80C. However, the maturity payout is tax-free under Section 10(10D) only if the sum assured is at least 10 times the annual premium.
- There are several added charges for fund management, policy administration, premium allocation, and fund switching beyond the free limit.
When Do You Need Them?
You will require a ULIP plan if you want decent life coverage along with investment opportunities to meet big-ticket goals. However, you should remain invested for the long haul in order to ride out temporary volatility and market fluctuations. At the same time, while market risks remain, you should periodically review your portfolio and then change funds whenever required to limit your risks and keep your returns on track.
Traditional Life Insurance- Learning More About It
When it comes to traditional life insurance, the simplest and most popular product is term insurance. It offers pure coverage to a higher amount than other life insurance plans, while you do not have any cash value or investment angle in these policies. You can get tax benefits on your premium payments under Section 80C, while the premium payment frequency can also be flexibly chosen at your convenience. Some policies also allow you to increase coverage with growing income and responsibilities, while you can also enhance your policy by adding riders like critical illness, waiver of premium, accidental disability and death, etc.
When Do You Need It? You will need term insurance if you are looking for higher coverage to take care of your family’s financial responsibilities after your demise. Also, it works if you want higher coverage for a relatively lower premium than other life insurance plans.
Which One Do You Choose?
Both these plans are important for your portfolio. You will need traditional life insurance in order to financially secure your family comprehensively in case of your demise within the policy period. At the same time, you can opt for ULIPs if your primary goal is investment growth while also having some life cover. They can help you meet big-ticket goals like retirement planning, the higher education of your children, buying a home, etc. The latter can be synced with your financial objectives, while the final aspect is your priority- if you need protection, go for traditional life insurance, while if you want market-linked investment returns, then opt for a ULIP plan.
