Difference Between Money Back Plans and ULIPs

What is money back policy? 

A money back policy is a type of life insurance where the maturity benefit is broken up into instalments and paid at regular intervals during the policy period. If the policyholder dies before the policy period comes to an end, his or her nominees receive the death benefit too. Thus, a money back policy has a life cover and a scope for investment as well. Money back plans are commonly taken by parents to secure the financial wellness of their kids. The payouts received at various points help to pay for the child’s education milestones. A money back plan is a type of life insurance endowment plan.

What is a ULIP? 

A ULIP is also a type of life insurance. However, the format of investment is different in a ULIP. Here, the premium you pay is divided into two parts. The first part is carefully kept in a life fund and it is used as the death benefit if you die within the tenure of the plan. The other part of the premium is invested in the financial markets. You can choose the type of investment you want. If you have a high risk appetite, you can opt for equity funds and if you have a low risk appetite, you can go for the cash funds. 

Differences between ULIPs and money back plans

Now that you know the ULIP meaning, money back policy meaning and endowment plan meaning, let us look at the key differences between a ULIP and money back plan:

• Returns: The returns are fixed in a money back plan. However, the returns may vary in a ULIP plan as the fund performance would depend on the condition of the financial market.

• Risk: There is practically no risk involved in a money back plan. This is because the payout happens at a fixed rate that is decided when the policy is bought. The risk is higher in a ULIP because the money is invested in the stock markets.

• Payout: The entire payout of the maturity benefit happens after the policy ends in a ULIP. However, in a money back plan, the payout happens periodically and not just at the end of the policy period.