In India, the awareness about insurance is not very high. In fact, many people choose to buy a policy that is recommended by their friends, family members, or colleagues. Over the years, life insurance plans have undergone a transformation to cater to the changing needs of people.
 

In this article, we will talk about three of the most popular life insurance products – Endowment plans, Term Plans, and Unit Linked Insurance Plans. We will analyze them to help you understand the differences between them.
 

What is an Endowment Policy?
 

When you buy an Endowment Policy, you get the combined benefit of life cover and investment in one product. In these policies, if the policyholder dies, then the nominee receives the sum assured amount. On the other hand, if the policyholder survives the policy term, then on maturity, the insurance company pays the maturity amount along with bonus, if any under endowment plan.
 

Advantages of an Endowment Policy
 

Here are some advantages of endowment plans:
 

• Financial protection to the family of the policyholder in the event of sudden demise or permanent disability
• Wealth accumulation to help fulfil long-term goals
• Availability of a loan against the policy
• Tax* benefits under Section 80C and 10(10D)
   

Term Life Insurance Policy
 

The term insurance policy is the most basic life insurance policy. The term insurance coverage is extended for a specified period, provided the policyholder makes the premium payments in time. On the death of the insured person, the nominee is the recipient of the sum assured. These policies do not offer wealth creation as an option.
 

Unit Linked Insurance Plans
 

Unit Linked Insurance Plans, or ULIPs offer three major benefits to investors:
 

• Life insurance
• Wealth creation via investment
• Tax* benefits
   

When you buy a ULIP, you are required to pay a premium amount every year. A part of this amount is invested, and the rest is used to offer life cover.
 

Difference Between Endowment Plans, Term Plans, and ULIPs
 

Here is a quick look at the difference between the three – Term Insurance ,Endowment Plan & ULIP:
 

• Definition
  
  
  • An endowment plan offers life coverage plus assured returns via less-risk investments
  • Term plan offers no survival benefit
  • ULIP offers life coverage plus wealth creation via investments
    
    
  The major difference between a Term plan and ULIP/Endowment plan is that in term plans, there is no opportunity to earn returns on your premium amount, whereas ULIPs and Endowment Plans offer investments.
  
  
• Maturity Benefit
  
  
  • Endowment plans – Death benefit and sum assured plus bonus on maturity
  • Term plans – no maturity benefits unless the insured chooses a premium variant
  • ULIPs – the invested units are redeemed at the prevailing rates on maturity
  
  
  The difference between a term plan and an endowment plan or ULIP is that if the policyholder survives the term, then a term plan offers no benefits. On the other hand, ULIPs and endowment plans offer some maturity benefits.



• Capital risk
  
  Since there is no investment in a term plan, no risk is involved. Endowment plans invest in bonds and other less-risk instruments to offer assured returns on maturity. However, in ULIPs a part of the premium is invested in market-linked securities. This adds an element of more risk to the invested capital. Hence, if you look at ULIP and Endowment plans, then ULIPs offer an opportunity to earn more return but with more risk involved with it.
  
  
• Tax* benefits
  
  This is one aspect where there is no difference between these plans. Therefore, if you are planning to purchase a life insurance policy for tax* benefits, then you can choose any of the three. Term plan, endowment plan, or ULIP tax benefits can be availed of under Sections 80C and 10D of the Income Tax* Act, 1961.
  
  

How to Choose the Best Life Insurance Policy?
 

There are two broad factors to consider while finding the best life insurance policy:
 

• Assess your needs
  
  Before you start looking for a policy, make sure about what are you looking for. If you are seeking plain life coverage, then a term plan is a good option. However, if you are looking for returns along with life insurance, then you can choose between ULIPs and endowment plans.
  
  ULIPs invest in market-linked securities that offer the potential to generate apt returns. However, the risks are more too. On the other hand, endowment plans focus on less risk investments to offer assured returns on maturity. Hence, make sure that you understand your needs before making a choice.
  
  
• Choose a reliable insurance provider
  
  There are many insurance providers offering a range of life insurance plans. However, it is important to note that while the plans might seem similar on the surface, the differentiating aspects are trust, reliability, and the quality of services offered by them.
  
  Tata AIA Life Insurance offers a range of customer-centric plans and has designed processes to make the process of life insurance hassle-free. Make sure that you analyze insurance companies before choosing one.
  

Conclusion
 

The difference between ULIPs term plans, and endowment plans makes them suitable for different life insurance needs. As you go through different phases of your life, your preferences change. Hence, if you have one of these plans, ensure that you assess if it is catering to your needs. If not, then you can opt for a plan that is in sync with your financial goals and preferences.

L&C/Advt/2022/Oct/2558