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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
ULIP combines insurance coverage with investment opportunities, allowing policyholders to invest in various funds, while an endowment plan provides both life insurance and a savings component with a guaranteed payout at maturity.
One has to consider factors like the sum assured, premiums, tenure of the policy, the risk involved, etc., before purchasing an insurance cover. But before you make the right decision, it is important to understand the difference between ULIP and endowment plan and learn which suits you the best.
Unit-linked Insurance Policy or ULIP is the right fit for you if you want to create wealth through investment opportunities. Part of the premiums paid for ULIPs contribute to life coverage, while the rest is invested in debt, equity, and money-market instruments. The investment can be made in different ULIP funds, such as equity, debt, or a combination of both, called balanced funds. You can also customize your ULIP by adding extra benefits through riders such as Unit Linked accident and disability benefit riders.
An endowment plan is a kind of insurance policy that provides financial security to your family. A lump sum is paid to you on maturity or to the beneficiary in case of the policyholder’s unfortunate demise. One of the main benefits of the endowment plan is that it provides you with a risk-free savings corpus and a financial pool at its maturity. So, you can also secure your post-retirement life with these savings.
Here is a comparison of the main aspects of these policies to help you understand the difference between ULIP and endowment plans.
Aspect
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ULIPs
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Endowment Plans
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Investment Component
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Invests in various funds like equity, debt, or balanced funds
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Provides guaranteed returns and builds a savings corpus
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Market-Linked Returns
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Subject to market fluctuations, offering potential for higher returns
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Offers guaranteed returns, shielding from market volatility
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Flexibility in Investment
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Allows flexibility to switch between funds based on market conditions and risk appetite
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Typically offers limited flexibility with fixed premiums and benefits
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Insurance Coverage
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Offers life insurance coverage along with investment benefits
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Provides life insurance coverage, ensuring financial protection
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Tax Benefits
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Premiums and maturity proceeds are eligible for tax deductions under Section 80C and 10(10D), respectively
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Premiums paid and maturity proceeds are eligible for tax benefits under Section 80C and 10(10D), respectively
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Liquidity Options
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Typically offers liquidity through features like partial withdrawals and surrender benefits
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Provides limited liquidity options with penalties for early surrender or withdrawals
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Long-term Wealth Creation
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Designed for long-term wealth creation, leveraging market potential
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Focuses on steady and predictable savings, building a corpus over time
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Legacy Planning
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May offer the potential for legacy planning through investment growth
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Enables legacy planning through guaranteed payouts and death benefits
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ULIPs offer the dual benefits of life insurance coverage with market-linked investment opportunities. This unique combination offers policyholders a range of advantages, making ULIPs a popular choice for those seeking a holistic approach to financial planning.
One of the primary attractions of ULIPs is the potential for market-linked returns. Unlike traditional insurance plans, ULIPs allow policyholders to invest in a variety of funds, including equity, debt, or a combination of both. This exposure to the market provides an opportunity for higher returns, especially over the long term.
ULIPs offer policyholders the flexibility to switch between different funds based on their risk appetite, market conditions, and financial goals. This adaptability allows investors to align their investment strategy with changing market dynamics and their evolving life stages.
ULIPs are well-suited for individuals with specific financial goals, such as buying a home, funding education, or planning for retirement. By tailoring the investment component to match these goals, policyholders can use ULIPs as a strategic tool for achieving their long-term objectives.
Beyond being an investment vehicle, ULIPs provide life insurance coverage, ensuring financial protection for the policyholder’s family in the event of untimely demise. This dual functionality addresses both the need for wealth creation and risk mitigation, making ULIPs a comprehensive financial solution.
ULIPs offer tax advantages, with premiums and maturity proceeds eligible for tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, respectively. These benefits enhance the overall tax efficiency of ULIPs, making them an attractive option for savvy investors.
ULIPs provide the flexibility to enhance insurance coverage by adding riders to the base policy. Riders such as critical illness cover, accidental death benefit, waiver of premium, or income benefit rider can be attached to ULIPs for an additional premium. These riders offer supplementary protection against specific risks or unforeseen circumstances, providing comprehensive financial security to the policyholder and their family.
ULIPs typically provide liquidity options, allowing policyholders to make partial withdrawals or surrender the policy under certain conditions. This feature ensures that investors have access to funds in case of unforeseen financial requirements.
Endowment plans have long been recognized as a reliable financial instrument, offering a unique combination of life insurance coverage and guaranteed savings. The distinctive benefits that endowment plans bring to the table make them a favored choice among individuals seeking a secure and disciplined approach to financial planning.
A primary advantage of endowment plans is the assurance of guaranteed returns. Unlike some market-linked instruments, endowment plans provide policyholders with a predetermined lump sum amount either upon maturity or in the event of the policyholder’s demise, offering a sense of stability and security.
Endowment plans serve a dual purpose by combining life insurance coverage with a savings component. This means that policyholders not only secure financial protection for their loved ones but also build a corpus over time, ensuring a financial cushion for future needs.
Structured as a long-term savings avenue, endowment plans encourage disciplined saving habits. Policyholders commit to paying regular premiums, fostering a consistent and systematic approach to accumulating wealth over the policy term.
Endowment plans are well-suited for individuals with specific financial milestones, such as a child’s education, purchasing a home, or retirement. The guaranteed returns and maturity benefits can be strategically aligned with these milestones, providing a financial tool for targeted goal achievement.
The maturity benefit of an endowment plan ensures that policyholders receive a lump sum amount at the end of the policy term. This payout can be utilized for a variety of purposes, offering flexibility in meeting diverse financial needs.
Endowment plans offer tax advantages, with premiums paid and maturity proceeds eligible for tax deductions under Section 80C and Section 10(10D) of the Income Tax Act, respectively. These tax benefits enhance the overall attractiveness of endowment plans from a financial planning perspective.
In the difference between ULIP and endowment plan debate, the choice ultimately depends on individual financial goals, risk tolerance, and investment preferences. ULIPs cater to those seeking dynamic, market-linked returns and flexibility in asset allocation. In contrast, endowment plans offer a more conservative, guaranteed return approach with disciplined savings and limited flexibility. The decision between the two depends on a thorough assessment of individual needs and a clear understanding of how each aligns with the broader financial strategy.
1
Endowment plans are insurance policies designed to provide both life cover and savings. They offer a lump sum payout either on maturity or in case of the policyholder’s demise during the policy term.
2
ULIP stands for Unit Linked Insurance Plan. It is a type of insurance product that combines life insurance coverage with investment options. A portion of the premium paid goes towards life insurance coverage, while the remaining amount is invested in various funds such as equity, debt, or a combination of both.
3
One disadvantage of ULIPs is the potential for higher charges, including premium allocation charges, policy administration charges, and fund management charges, which can impact the overall returns on investment.
4
Endowment plans typically offer lower returns compared to other investment options such as mutual funds or direct equity investments. Additionally, they may have longer lock-in periods, limiting liquidity. Moreover, the premiums for endowment plans tend to be higher compared to pure term insurance policies.
5
ULIPs offer flexibility in investment choices, allowing policyholders to select from various funds based on their risk appetite and investment goals. On the other hand, endowment plans usually have a predetermined investment strategy managed by the insurance company, offering limited flexibility to policyholders.
6
Both ULIPs and endowment plans offer tax benefits under Section 80C of the Income Tax Act, allowing tax deductions on the premiums paid. Additionally, the maturity proceeds from both ULIPs and endowment plans are generally tax-exempt under Section 10(10D) of the Income Tax Act.
7
An endowment plan may be more suitable for someone with a low-risk tolerance as it offers a guaranteed maturity benefit along with life cover, providing a relatively stable investment option with lower exposure to market risks compared to ULIPs.
1. How Does an Endowment Plan Work?
2.Maximize Your Savings: Tax Tips for Salaries Above ₹20 Lakhs
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.
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.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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