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ULIP Vs Life Insurance Plan Know the Difference

ULIP and Life Insurance plans are insurance policies with their own set of financial benefits. Read more to know about the difference between Life Insurance and ULIP.

  • 4,935 Views | Updated on: Jan 10, 2024

When it comes to safeguarding your loved ones’ future, you seek out the best option possible. For the same, debating the differences between the best investment plans is a constant, such as - ‘what is the difference between the best ULIP plan and life insurance?’ In this article, we’ll look at both tools in depth to help you make the best decision that’s both financially sound and is aligned with your needs.

The Basics of Unit Linked Insurance Plan

A ULIP, or unit linked insurance plan, is a financial instrument that combines insurance with investing. The balance of the ULIP payment is allocated to funds of your choice after the mortality cost or insurance is deducted. The purpose of ULIPs is to assist you in accumulating money and assets. They are market-dependent as the market conditions define their results.

Sustainability Factor

If you’re looking for a long-term investment, ULIPs are the way to go. Since ULIPs’ primary focus is on the investing component, it ultimately leads to wealth creation.

Sum Assured Benefit

In the event of your death, the sum assured is paid to your beneficiary. Furthermore, the money you have invested will receive returns dependent on market circumstances, thereby assisting you in achieving long-term financial objectives.

Charges & Expenses

As there is no limit specified by the IRDAI, the costs of managing ULIPs are significant. Expenses encompass life insurance mortality fees, premium allocation costs, fund management fees, and administrative costs.

Flexibility

ULIPs include a variety of investment alternatives, such as exchange trade funds, loans, and stock options, amongst others. You can choose any of them depending on your risk tolerance and other financial considerations. You can even switch from one fund to another to maximize your earnings

Tax Benefit ULIP 80C

Section 10D of the Income Tax Act of 1961 provides tax exemptions on the payments earned. In addition, ULIP insurance premiums as per section 80C are eligible for tax deductions.

The Basics of Life Insurance

Risk coverage, a set income earning, safety, and tax advantages are all features of life insurance policies. These are the most traditional types of schemes for individuals with a risk aversion tendency they are very popular for the purpose they serve, such as providing financial protection during emergencies.

Sustainability Factor

A life insurance policy is available to help your loved ones in the form of consistent income payouts or a lump sum payment. Some policies even refund all premiums paid if you live till the end of the policy term.

Sum Assured Benefit

The sum assured by the insurance provider will be given to the specified beneficiary in the case of your unfortunate demise.

Charges & Expenses

This depends on the type of plan you choose and include costs like life insurance mortality fees, premium allocation costs, etc.

Flexibility

Life insurance plans have a different kind of flexibility in the sense that you can choose your cover amount, premium amount, policy term period, etc.

Tax Benefit

Life insurance payments up to ₹1.5 lakh per year are tax-free as per Section 80C of the Income Tax Act. Furthermore, the death benefit paid to beneficiaries is tax-free under Section 10 (10D).

To summarize, when you compare ULIP plans to life insurance, the former allows you to build wealth while also safeguarding your loved ones in difficult times, and the latter ensures your family’s well-being after you pass away. As a result, it is suggested that you select the option that best matches your personal and financial needs.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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