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How Is ULIP Different from Other Life Insurance Plans? Where Can I Invest - ELSS, ULIP, or PPF?

It's critical to comprehend the many investment programmes that are available, as well as the dangers and rewards that go along with them, to make an educated decision.

  • 3,472 Views | Updated on: May 27, 2024

The past, present, and future are the inevitable reality and truth of our existence. While the past cannot be altered, the present and future can always be protected. This is where the need for careful financial planning and investing choices becomes critical. Since the investment market has grown in size recently, it might be difficult for an investor to decide which financial instrument to invest in.

In India, there are numerous different investment plans to choose from. The investor’s long-term goals and objectives should be considered when selecting an investment strategy. It’s crucial to ascertain the type of investment that will yield the maximum return and the level of risk associated with each choice.

A great number of individuals favour the ULIP policy. If you’re interested in learning more about ULIPs and other investing alternatives, we’ll guide you through. Often, ULIP schemes are compared with ELSS and PPF, and individuals are generally confused about which choice is best suited to their needs. We’ll continue to debate which is better: ULIP, ELSS, or PPF, and how ULIPS differs from other insurance plans. 

Differentiating Aspect of ULIPs from Other Life Insurance Plans

A ULIP or Unit Linked Insurance Plan is a scheme that combines insurance and investment into one package. It combines wealth creation with life insurance by having the insurance company invest a portion of your income in life insurance premiums and the balance in stocks, bonds, equities, debt, or a combination of these alternatives, depending on your long-term objectives.

ULIP vs ELSS vs PPF

To help you make the best investment decision based on your financial goals, we’ve outlined the difference between Unit Linked Insurance Plan, Equity Linked Savings Scheme, and Public Provident Fund.

Unit Linked Insurance Plan Or ULIP

Public Provident Fund or PPF

Equity Linked Saving Scheme Or ELSS

Investment Type

ULIP combines investment and life insurance plans into one.

PPFs are a pure investment plan.

ELSS is a pure investment plan.

Lock-In Period

ULIPs have a 5-year mandatory lock-in period.

PPF have a mandatory lock-in period of 15 years.

ELSS have a minimum of 3-year lock-in tenure.

Objective

This financial plan provides momentum for investment gains as well as tax reduction and life insurance.

The scheme’s principal goal is to assist people in making little deposits and offer returns on their investments.

A professionally run fund that invests in a variety of equities and reaps the rewards.

Returns

In ULIPs, the rate of return might fluctuate.

Since this investor selects a mix of equity, bond, and hybrid funds for investment, this influences the rate of return.
After looking over all of the facts and studying the difference between ULIP, ELSS, and PPF, it’s critical to determine your financial objectives and then choose between ULIP, ELSS, and PPF to invest your money in the instrument that best suits you and your family.

PPF currently has a 7.9% annual rate of return.

The rate of return in an ELSS is subjected to variation, which means that it is solely determined by how well the stock market does over a period.

Risks

Significant risk, no assurance of money or return, but life insurance is assured.

PPF is a government-backed scheme, and Thus are risk-free.

Returns depend on the success of the wider markets and the fund Manager - thus, they have high risk.

Tax Benefits

Returns and investments are exempted from taxes under 80C Deduction , and Section 10(10D) of the Income Tax Act of 1961

Tax benefits are offered under Section 80C of the Income Tax Act of 1961.

Long Term Capital Gains (LTCG) tax regulation exempts investments as non-taxable under Section 80C and returns up to ₹1 lakh per year.

Why Invest in ULIP?

Savings accounts and fixed deposits, which are common investment options, are unable to offer returns that can keep pace with the rate of inflation. Direct investment in the stock market, however, carries significant dangers. For this reason, the market saw the introduction of investment programmes like Unit Linked Insurance Plans (ULIPs).

ULIP policy is a fantastic investing strategy that enables you to gain from the stock market without taking on significant risks and also functions as a life insurance policy. In addition to the dual advantages, ULIP plans provide several additional advantages that rank them among the top long-term investment plans.

Here are four key justifications for why you ought to buy a ULIP plan right now!

Flexibility

Due to the variety of investment alternatives, one may now assume that ULIPs are comparable to mutual funds. ULIP allows investors to choose between various types of programmes, unlike mutual funds. The best way to take advantage of investment opportunities across the equity and debt markets is to switch between various schemes. For instance, if someone wants a higher rate of return, they can change from a conservative to an aggressive strategy.

Combines Insurance with Savings

A ULIP is a type of life insurance that also functions as an investing strategy for the long term. A ULIP plan also distributes an expanded corpus with market-linked returns upon maturity in addition to the death benefit. To achieve your financial objectives, you do not need to enrol in a separate life insurance plan and mutual fund investments.

Multiple investment options

ULIPs offer a choice of options, unlike typical investment plans and life insurance plans. A person can select from various ULIP programmes based on his investing requirements and risk tolerance. The following categories can broadly be applied to ULIP investments:

Unrelenting ULIPs (invests majorly in the equity markets)

Equilibrated ULIPs (invest in both equity and debt markets)

Consistent ULIPs (invests majorly in debt markets)

Systematic investment

A ULIP plan encourages someone to make disciplined investments. By making tiny, recurring investments, you can protect yourself from the ups and downs of the market. This enables you to benefit from rupee costs, enabling you to maximise market price swings.

Wrapping Up

Endowment plans and guaranteed savings plans are examples of traditional life insurance plans that offer fixed and guaranteed returns. These programs allow you to save money, which can be used to fund objectives like a daughter’s wedding and schooling. Due to their tax-exempt status, these plans are also the greatest regarding financial gifts.

Money-Back plans, which provide regular payouts, can be coordinated to guarantee a quality education for your child or provide financial support for parents.

ULIP schemes incorporate market investment. Over time, these can greatly increase your wealth. Therefore, ULIPs can be used to accomplish goals with a long time horizon, such as building a retirement corpus, pension, or leaving a legacy.

FAQs


1

Is ULIP a good investment option?

The best place to invest is in ULIP policy. They not only provide life insurance and make sure your money is safe; they also give you the opportunity to make money by investing your money. They are among the best investments to make because of their adaptability. Make sure to carefully review all the features and the terms and conditions in the policy document before buying a ULIP plan.



2

What is the difference between ULIP and ELSS?

Investors who choose ELSS cannot choose a different fund or alternative asset allocation because it is a required equity fund. A ULIP, on the other hand, is an insurance plan that invests in funds and allows investors to select the kinds of funds they want to buy into. They may even decide to change their minds later on and invest in a different kind of fund.



3

What is the difference between ULIP and PPF?

Due to the expense, ULIP investments are less common than PPF and mutual fund investments. Unit-linked insurance policies are more alluring than mutual fund investments and PPF because to the tax advantages they offer.

Additionally, insurance protection plans for ULIPs guarantee investment returns. ULIPs could be a fantastic investment option for building your retirement corpus, but it must be done carefully.


4

What is the difference between ULIP and Traditional Life Insurance?

Traditional life insurance plans are known as conventional plans. They often invest in low-risk options with guaranteed returns and provide announced bonuses and guaranteed maturity funds. ULIPs provide you with the freedom to invest according to your risk tolerance, financial obligations, and convenience.

- 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

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

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