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Difference Between ULIP and Traditional Plans
The difference between ULIP and Traditional Plans lies in their structure and benefits. ULIPs combine insurance with market investments for higher potential returns and flexibility. Whereas, Traditional Plans focus on secure savings with guaranteed returns and stability.
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- 7.7 Crore Registered Consumer
- 50 Partners Insurance Partners
- 4.2 Crore Policies Sold
ULIP Plans
- Plan starting from ₹1,000/month
- Save upto ₹46,800 in Tax under section 80C^
- Zero LTCG Tax¶
- In built life cover
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7.7 Crore
Registered Consumer
50
Insurance Partners
4.2 Crore
Policies Sold
Top performing plans with High Returns**
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- Difference between ULIP and Traditional Plans
Top ULIP Funds†
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
High Growth Fund
Max Life
AUM:8,482 Cr
8,482 Cr
NAV
119.99
1.59%
Returns
23.95%
Whole Life Mid Cap Equity Fund
Tata AIA
AUM:13,435 Cr
13,435 Cr
NAV
158.69
2.49%
Returns
21.08%
Virtue II
PNB Metlife
AUM:3,532 Cr
3,532 Cr
NAV
77.53
1.12%
Returns
17.59%
Accelerator Mid-Cap Fund II
Bajaj Allianz
AUM:6,452 Cr
6,452 Cr
NAV
86.49
1.27%
Returns
17.79%
Opportunities Fund
HDFC Standard
AUM:40,966 Cr
40,966 Cr
NAV
78.44
1.16%
Returns
15.75%
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Whole Life Aggressive Growth Fund
Canara HSBC Oriental Bank
AUM:869 Cr
869 Cr
NAV
93.59
0.82%
Returns
16.11%
Whole Life Stable Growth Fund
Canara HSBC Oriental Bank
AUM:266 Cr
266 Cr
NAV
61.92
0.32%
Returns
12.53%
Balanced Fund
Canara HSBC Oriental Bank
AUM:380 Cr
380 Cr
NAV
48.06
0.34%
Returns
11.49%
Asset Allocation Fund II
Canara HSBC Oriental Bank
AUM:341 Cr
341 Cr
NAV
31.32
0.18%
Returns
9.45%
Save N Grow Money Fund
Canara HSBC Oriental Bank
AUM:68 Cr
68 Cr
NAV
58.7
0.37%
Returns
8.69%
Fund Name
AUM
NAV
Returns (in %)
3 Year
5 Year
10 Year
Builder
Canara HSBC Oriental Bank
AUM:243 Cr
243 Cr
NAV
89.55
0.06%
Returns
6.87%
Whole Life Income Fund
Canara HSBC Oriental Bank
AUM:802 Cr
802 Cr
NAV
38.31
0.03%
Returns
6.22%
Debt Fund
Canara HSBC Oriental Bank
AUM:482 Cr
482 Cr
NAV
36.29
0.04%
Returns
5.92%
Conservative Fund
Canara HSBC Oriental Bank
AUM:233 Cr
233 Cr
NAV
55.4
0.09%
Returns
7.01%
Protector
Canara HSBC Oriental Bank
AUM:307 Cr
307 Cr
NAV
64.22
0.06%
Returns
6.07%
Disclaimer :
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
What is a Unit Linked Insurance Plan (ULIP)?
A Unit Linked Insurance Plan (ULIP) is a financial product that combines life insurance coverage with investment opportunities. It essentially puts your money to work in two ways:
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Life Insurance: A portion of your premium goes towards life insurance, providing financial security for your loved ones in case of your unfortunate demise.
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Investment: The remaining part of your premium is invested in funds chosen by you. These funds can be equity (stocks), debt (bonds), or a mix of both, depending on your risk tolerance and financial goals.
What is a Traditional Policy?
Traditional insurance plans are essentially life insurance policies that offer a combination of benefits, including:
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Life coverage: This is the core benefit of any insurance policy. In case of the policyholder's death during the policy term, a death benefit is paid to the nominees.
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Guaranteed returns: Unlike market-linked insurance plans, traditional plans offer fixed returns on your investment. This makes them suitable for people who are risk-averse and prioritize guaranteed growth over potentially higher returns.
ULIP vs. Traditional Plan
| Parameter | ULIP Insurance | Traditional Insurance |
| Type | Insurance cover with market-linked investment benefits. | Pure insurance cover with fixed returns. |
| Investment Objective | Long-term investment to generate market-linked profits along with insurance coverage. | Fixed returns in the long term. |
| Nature of Return | Variable returns based on market performance. | Guaranteed returns with low-risk instruments. |
| Control on Investment | Investors choose investment type and risk and can switch between funds (e.g., debt to equity). | No control over fund allocation or risk level. |
| Use of Funds | Premium split for expenses, insurance, and market-linked investments. | Premium split for expenses, insurance, and low-risk investments. |
| Returns | Market-dependent, can be high or low. | Predetermined, generally lower. |
| Flexibility | Choose premium allocation between insurance and investment. | No flexibility. |
| Tax Benefit | Available under Section 80C and 10(10D) of the Income Tax Act. | Available under Section 80C and 10(10D) of the Income Tax Act. |
| Lock-in Period | Minimum of 3 to 5 years. | Until policy maturity. |
| SIP Investment Mode | Available. | Not available. |
| Transparency | High, regular updates on fund performance. | Low, minimal disclosure on returns. |
| Partial Withdrawals | Possible with conditions. | Generally not possible; loans can be taken against policy. |
| Charges | Higher charges (fund management, premium). | Lower charges. |
| Investment | Invests in market-linked funds. | Invests in fixed-income securities. |
| Risk | Higher risk due to market fluctuations. | Lower risk, stable returns. |
| Liquidity | Partial withdrawals allowed after lock-in. | Limited to loan against policy. |
Which is Better: Traditional Plan vs. ULIP?
The choice between a Traditional Plan and a ULIP depends on individual preferences and financial goals:
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Choose Traditional Plans if:
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You prefer guaranteed returns.
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You are risk-averse.
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You seek low-risk savings with insurance coverage.
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Choose ULIPs if:
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You are willing to take market-linked risks for potentially higher returns.
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You prefer flexibility in investment choices.
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You seek long-term wealth creation with insurance coverage.
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Ultimately, assess your risk appetite, investment goals, and the time horizon before making a decision.
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Conclusion
Unit Linked Insurance Plans (ULIPs) and Traditional Insurance Plans serve distinct financial needs. ULIPs combine insurance with investment, offering market-linked returns and flexibility in fund allocation, but come with higher risk and costs. Traditional plans, on the other hand, provide guaranteed returns and stability through endowment and money-back policies, focusing primarily on insurance coverage with lower risk. Choosing between a ULIP and a traditional insurance plan depends on individual risk appetite, financial goals, and investment horizon.
FAQs
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What is the difference between a traditional plan and ULIP?
Both traditional plans and ULIPs (Unit Linked Insurance Plans) offer life insurance coverage, but they differ in their focus and returns:Traditional Plans:
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Focus: Guaranteed returns and life cover.
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Returns: Offer fixed guaranteed returns, typically lower than market returns.
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Investment: Limited or no investment options.
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Transparency: Simple structure with clear benefits.
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Suitability: Good for those seeking guaranteed protection and predictable returns.
ULIPs:
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Focus: Combining life cover with market-linked investments.
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Returns: Potential for higher returns based on market performance, but not guaranteed.
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Investment: Offer various investment options (debt, equity, balanced) to choose from.
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Transparency: More complex structure with various charges to understand.
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Suitability: Good for those seeking potential for growth along with life cover and are comfortable with market risks.
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What is the difference between ULIP and term plan?
The key difference lies in the purpose of the plan:-
ULIP: Provides life cover and investment potential in a single plan.
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Term Plan: Offers pure life insurance coverage at a lower cost, with no investment component.
Term plans are ideal for those who prioritize high life cover at an affordable price. ULIPs are suitable for those seeking both protection and the potential for wealth accumulation.
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What is the difference between ULIP and a guaranteed plan?
This mainly focuses on the return aspect of the ULIP vs Guaranteed Plan:-
ULIP: Offers market-linked returns, which are not guaranteed.
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Guaranteed Plan (typically refers to Traditional Plans): Provides guaranteed returns, with a lower potential for growth compared to ULIPs.
Guaranteed plans offer peace of mind with predictable returns, while ULIPs give the chance for higher returns but come with market risks.
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†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.
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