What is the Difference between Life Insurance and ULIP?

I have invested in a ULIP insurance plan. My premium term is 5 years lock-in period and the premium will be deducted from taxable income under 80C section. For example if I invest Rupees 1 lakh each year and then after 5 years , I was told that I will get good returns as the company will invest the money in equities, mutual funds, securities.My purpose as of now, is just a saving option.

If I buy an Life insurance from LIC (for example), how is that different from a ULIP insurance plan.

Have I taken a good decision or will I loose my money.

2 thoughts on “What is the Difference between Life Insurance and ULIP?

  1. Pete B.

    I would refer you to this question and answers.

    Here in the US we have two basic types of life insurance: term and whole life. Universal life is a marketing response to whole life being such a bad deal, and is whole life just not quite as bad.

    I am not familiar with the products in India, but given the acronym (ULIP), it is probably universal life, and as you describe is variable universal life.

    Likely Description

    “Under the hood”, or in effect, you are purchasing a term life policy and investing excess premiums in a collection of stock mutual funds. This is a bad deal for a few reasons:

    • The true cost of the term is hidden. You might be able to find much more competitive rates.
    • There are surrender fees on the policy. If you cancel before 15 years you will lose some or all of your investment.
    • The fees charged by insurance companies are very high
    • They may not put you in the best mutual funds
    • Your heirs will receive less money. When you pass, your heirs will receive the face value of the policy rather than the face value plus investments.

    A much better option is to buy “level term insurance” and invest on your own.

    You won’t necessarily lose money, but you can make better financial decisions. It is good to invest, it is good to have life. A better decision would not to combine the two into a single product.

  2. Dheer

    ULIP insurance plan

    ULIP is Unit Linked Insurance Plan. The premium you pay, a small part goes towards covering life insurance. The Balance is invested into Stock Markets. Most ULIP would give you an option to choose from Debt Funds [100% safe buy low returns 5-7%] or Equity [High Risks, Returns can be around 15%]. Or a mix of both.

    ULIP are not a good way to save money. There are quite a few hidden fees that actually reduce the return. So notionally even if returns shown are great, in effect it is quite less. For example the premium you pay in first year, say Rs 10,000/- Rs 2,500/- goes towards commission. And say Rs 100 goes towards insurance. Balance Rs 7,400/- units are purchased in your account. Even if these grow by 20%, you are still in loss. Ofcousre, the commissions go down year after year and stop at 5%. Then there is fund management fees that you don’t get to see. There is maintenance fee that is deduced from your balance.

    Thus the entire method of charging is not transparent.

    Life insurance from LIC

    There are broadly 2 types of Life Insurance plans

    Money Back / Endowment Plan. The concept here is again same, you pay a premium and part of it goes toward Insurance. The balance LIC invests in safe bonds. Every year a bonus is declared; generally less than Bank rate. At the end of the plan you get more than what you paid in premium. However if you had kept the same in Bank FD, you would have got more money back. So if you die, your nominee would get Insurance plus bonus. If you survive you get all the accumulated bonus.

    Pure Term Plan. Here the premium is quite less for the sum insured. Here if you die, your nominee would get insurance. If you survive you don’t get anything.

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