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Before you invest in term plans you should have a comparison between the ULIPs and endowment plans to know which one is the better option for you. Here is A comparison between the ULIPs and endowment plans.
There are three ways in which the ULIPs can prove to be beneficial to you. They can provide you with better coverage, help you save taxes, and also enable you to accumulate wealth. The money that you invest in the ULIPs is divided between risk management and investment. In these cases, you can invest in a wide array of funds based on the financial objectives that you have in life and the amount of risk that you are willing to tolerate to achieve them.
On the other hand, term insurance and basic life insurance plans guarantee you a certain sum of money when the policy matures and if you – the policyholder – die within the policy coverage period. The thing with ULIPs is that their returns are not guaranteed. However, they do have the potential to provide you with higher returns based on the market efficiency of the funds where you have invested. With the ULIPs you do have the flexibility to switch the products where you are investing quickly and adjust your investment strategy according to your needs at that time.
As opposed to a ULIP planthe endowment policies can be defined as traditional life insurance policies where you get money if you survive after the policy matures. In case you die within the policy coverage period your beneficiaries get that payment. These policies also cover other possibilities such as unexpected disabilities and similar death. The ULIPs on the other hand combine insurance coverage with the capability of earning extra money for you. As per the terms and conditions mentioned in these plans, a part of the premium that you pay is invested in stocks and the remainder is earmarked for life insurance.
In a policy endowmentif you withdraw the money before you are supposed to you would have to pay a penalty for the same. In the emergency situations, you can pull funds from your ULIP accounts. However, in other circumstances, the rules provide that the living assured must be at least 18 years old before receiving an overdraft from the insurance.
In the ULIPs the cash flow depends on how well the stock market is performing.
Since you already know the ULIP meaning you would probably understand that they would be costlier than conventional life insurance policies. This is especially true when you buy stocks through mutual funds. This is the reason, over a long time they would yield better results compared to the traditional life insurance policies. On the other hand, you can depend on the normal life insurance plans to provide you with a certain amount of money as agreed to in the contract. These returns are not affected by the condition of the market.
The ULIPs are a lot more transparent than the other forms of life insurance. This is especially true of the best ULIP plans. Normally, in conventional policies, there is no equity investment and this is why you cannot hold venture investors accountable in these cases. The ULIPs can help you understand the way your money is being invested and how it would be allotted through the plan. In ULIPs the communication between the insurers and the policyholders is much better. This is because they are linked directly to the market and as such have a higher sensitivity to risk.
If you are looking to build wealth in the long term you should look at a ULIP policy as one of the viable options that you have in this regard. By investing in them you stand to gain from the power of compounding as well. This means that if you remain invested in them for a long time they would help you build a good-enough portfolio. The money that you make at maturity would be determined by the NAV (net asset value) of the unit-linked insurance plan at that time.
With the money that you make from the ULIPs, there is a lot that you can do for your family and the people that you care about. You can save money for their future. You can finance their higher education and you can also get them married.
The only advantage that you can gain from an endowment policy is the guarantee that you would get your money at the time when you are supposed to or under the circumstances that your beneficiaries should. So, when you consider returns the ULIPs are hands down better than the traditional life insurance policies.
It is always better to keep your banking needs separate from that of reinsurance. So, if you’re seeking for the appropriate coverage in life insurance plan, term insurance policies are the way to go. The good thing with ULIP insuranceis that you get to choose from a diverse range of asset classes and products. This would be determined by key factors such as your financial goals, liquidity requirements, and risk tolerance. If you are an investor who is averse to taking risks or if you are more bothered with saving taxes you can invest in a term plan along with a PPF (public provident fund).
However, if you are not shy of taking risks to earn that extra money you can combine investments in a term plan along with the ELSS (equity-linked savings scheme) funds as well. The latter offers tax benefits too. A ULIP is obviously something that you can try in these cases.
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