A financial plan should ideally include considerations for investment, insurance and aim towards maximising profits and savings. In terms of protection, a life insurance policy has long been considered the best insurance instrument owing to its ability to provide cover to policyholders. Additionally, life insurance policies also offer tax benefits which makes them even more attractive for policyholders.

In recent years, Unit Linked Insurance Plans (ULIPs) have also gained enormous popularity. These instruments not only offer insurance to policyholders, but also invest a percentage of the premiums towards investments. Policyholders can decide how much portion of their premiums goes towards investments, and how much percentage is used for providing protection to them. ULIPs offer a great deal of flexibility regarding the premiums paid, and at times it is difficult to decide the winner in the life insurance vs ULIP battle. ULIPs are especially great for achieving long-term financial goals, including education and marriage of children, while traditional life insurance plans are particularly apt for providing financial security for long periods of time, without the risk of investing in market instruments.

However, if you are trying to pick the correct instrument from life insurance vs ULIP, read on to learn more about how the two differ.

• Function: Life insurance policies have one function only, which is to ensure that the policyholder and their family has adequate protection in case of any unprecedented incidents, like the policyholder’s death. A ULIP is more multifunctional. Not only does it provide coverage to policyholders and ensure that their dependents are looked after in case of their unexpected death, but it also diverts a certain portion of the premiums paid towards investments which generate high returns.
• Flexibility: A ULIP offers a lot of flexibility, depending on the requirements of the individual policyholder. With a traditional life insurance policy, there is no such option for switching between funds. While paying the premiums on a ULIP, policyholders can choose how much of it they want used as coverage and what portion of the premium they want used for investment purposes. Based on their risk profile, policyholders can choose to invest in a range of instruments. If they are willing to take more risk, policyholders can opt to invest in equity funds which are riskier but offer higher returns. In case they do not wish to incur huge risks, they can choose to opt in debt funds or even government securities. Opting for the Invest4G plan from Canara HSBC lets investors choose between 7 different funds and 4 portfolio strategies.
• Charges: Policyholders looking to invest in an instrument often look into how much it’s going to cost them. With a life insurance policy, policyholders need only pay the premium amount to ensure their dependents can avail the death benefits. However, in the case of a ULIP, policyholders might end up incurring higher costs since there are additional benefits they will incur through ULIPs than through life insurance. The other charges include premium redirection charges, switching charges, fund management charges, premium allocation charges and policy administration charges. Many of these charges become applicable when policyholders choose to redirect their premium allocation. Many ULIPs are now reducing the costs involved in fund switching or allocation since it allows policyholders more flexibility in terms of easily switching between funds. Since the amount invested depends on the risk profile of the policyholder, there needs to be flexibility at the time of switching funds which investors might wish to do frequently at times of market instability.
• Time Period: With ULIPs, there is usually a lock-in period which ensures that policyholders cannot withdraw their funds for a certain period of time. This ensures forced savings on the part of the policyholders, and allows them to avail higher capital after the lock-in period is over. However, with a life insurance policy, there is no lock-in period. Policyholders can continue to pay premiums until the time they wish to continue to avail coverage. In most cases, the life insurance policy ceases to provide cover as soon as the policyholder stops paying the premium.
• Maturity: At the time of maturity of the fund, ULIP policyholders can redeem the policy at the prevailing market rates. In case of life insurance though, the policyholder or their dependents will only receive the sum assured that was initially intimated to them.

Both ULIPs and traditional life insurance policies are good tools to invest in, especially for ensuring that your dependents are well looked after and can continue their present lifestyle even if you are no longer around. If you find yourself inclined towards generating high returns to use for the milestones in your life and are prepared to invest a portion of your time in managing your funds, ULIPs are the pick for you. However, if you want to sit back and enjoy financial protection without taking on risk, a traditional life insurance plan is suitable.

Head to Canara HSBC today to understand which plan best works for you, according to your individual requirements. ULIPs such as Invest4G, available on Canara HSBC, offer enormous flexibility to policyholders in terms of choice of funds with the option of choosing between 7 different funds and with 4 portfolio strategies.