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ULIP Plan or Traditional Insurance Plans - Which is better?

Unit-linked and traditional insurance plans have their advantages. Know which insurance policy will assist you in attaining your financial goals while assessing risk.

  • Apr 26, 2022

For many reasons, people invest in insurance to earn good returns, secure their future, or create wealth to help them meet their financial needs and requirements. However, regardless of the objectives, there are two insurance plans: unit-linked and traditional. Both have advantages, making it tough to choose the ideal for meeting your financial objectives.

We’ll look at each of these investment options in further depth in this article to help you understand the difference between ULIP and Traditional Plan.

What is ULIP?

A Unit Linked Insurance Plan (ULIP) is an insurance plan that includes both insurance and investing opportunities. The goal of ULIP is to give extra advantage of life insurance coverage and the possibility of long-term wealth growth. The advantages of a ULIP plan are numerous. Fund switching, surrender option, premium allocation, top-up facilities, numerous rider add-ons, and other available features. A ULIP plan contains everything.

What is a Traditional Plan?

Before ULIPs were introduced, traditional insurance plans were a prominent choice among all investors. These plans make a lump sum payment and incentives after a specific amount of time or upon death. The premiums for these policies are predetermined, and the payment is certain. It is a fantastic alternative for all life insurance benefits, investment, fixed income, and tax savings because it is a risk-free product.

Traditional Plan vs ULIP

Options for Investing

You have ultimate control over where your money is invested with a unit-linked insurance plan. For example, you can invest all of your money in equities, debt, or balanced funds. On the other hand, traditional plans do not let you pick your investing options.


ULIP plans are versatile because the owner can choose from various withdrawal choices that give you more financial freedom when you’re in a pinch. Traditional plans do not have the same flexibility.


ULIPs have various fees attached to them. These, on the other hand, are usually mentioned directly at the start. As a result, you can pick from various investment plans that do not incur premium allocation fees. Regrettably, there is little clarification on the costs with regular plans.

After understanding the difference between ULIP and traditional plan, it is clear that due to the numerous charges, ULIP returns vary depending on the type of funds you pick. For example, ULIP returns may be lower if you invest in a money market plan because of the various expenses.

However, it also offers adequate insurance coverage. ULIPs give insurance coverage about ten times the annual premium paid, whereas traditional insurance policies provide coverage based on the kind of goods.

Term insurance provides comprehensive coverage that can satisfy all of your needs in the event of death. However, you are not reimbursed for your investment. Endowment plans provide less insurance but also provide an investing opportunity. Surprisingly, both of the above provide tax benefits under Section 80C of the Internal Revenue Code.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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Ref. No. KLI/22-23/E-BB/521


- A Consumer Education Initiative series by Kotak Life

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