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Endowment plans and ULIPs – know the difference

Endowment plans and ULIPs – know the difference

04/12/19

Endowment plans and ULIPs – know the difference

To endow simply means to possess or inherit something from someone. An ‘Endowment’ usually refers to money that is given as a gift to an institution to provide it with an income. An Endowment Policy, in the same way provides you with not just life coverage but also endows you with an amount you can use as income. How, exactly? In an Endowment policy, you will be given a lump sum amount at maturity of policy that you can use to meet financial needs such as achieving your life goals, repay loans and debts, etc. Should anything unfortunate happen to you during the term of your policy, the lump sum will be paid out to your beneficiaries. All of this makes an endowment plan an excellent investment option.


Endowment plans are generally of two types - with profit and without profit. In a With Profit Endowment plan, the final payout includes profits earned by the company, whereas Non-profit Endowment plans do not include any profits earned by the company.


If on the other hand, you were to invest in ULIPs, unlike Endowment plans, ULIPs offer market-linked investment options which yield high and compounding returns. Both ULIPs (Unit Linked Insurance Plans) and Endowment plans are financial instruments that are a combination of investment and insurance. But in case of a ULIP, a part of the premium that you pay gets put into investment products such as equity stocks, bonds or funds. The value of these funds or assets are determined by the prevailing market conditions. The more premium you pay towards a ULIP, the higher is your sum insured.


Here are the main features of both - endowment plans and ULIPs for you to understand the difference.

FEATURES ULIPS ENDOWMENT PLANS
PROTECTION Life Insurance + Investment Life Insurance + Savings
RETURNS Returns are based on prevailing market rate on maturity Death Benefit and Sum Assured (Bonus on Maturity, based on chosen plan)
RISK High risk Low risk
FLEXIBILITY Can switch funds and change investment strategy No change in investment
RETURNS Depends on market performance Guaranteed fixed amount
LOCK-IN PERIOD 5 years Usually 2-3 years, depending on plan and premium payment term
WITHDRAWAL Can withdraw from the policy post the lock-in period Restrictions and penalties upon withdrawal

Do note that these above listed features of Endowment plans and ULIPs might vary depending on the Insurance plan you finally choose.

 

Now that you at least have a better understanding of the differences in both, it should be easier for you to understand which option suits you better. Have a conversation with your Life Insurance advisor or representative today to help you take this decision and choose a policy that keeps your long-terms goals and convenience in full consideration.

 

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