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Traditional insurance plans offer you life cover along with guaranteed returns. On the other hand, non-traditional insurance plans like Unit-Linked Insurance Plans (ULIPs) are more of an investment product and less of an insurance product. The returns here are usually higher but not guaranteed.
Here are the differences between the two types of plans
|Feature||Traditional Plan||Non-Traditional Plan|
|Investment Assets||Although you know how much money is used for which purpose you don’t have information on the asset allocation||You have an option to choose the funds in which you want to invest depending on your risk appetite|
|Portfolio Tracking||Since the returns are guaranteed and the premium is fixed, traditional plans do not have a portfolio tracking feature||You can track your investment portfolio on a day to day basis|
|Withdrawal||Withdrawal is not allowed. You can surrender your policy but there will be charges||Partial withdrawals are available after the lock-in period. Alternatively, you can also surrender the policy|
|Switching||Since you have no control over asset allocation, switching option is not applicable||You have the option to switch funds as and when your life situation and needs change. Most plans offer you a range of options like equity, debt, bonds, balanced funds, etc|
|Maturity Amount||The amount is fixed, you receive an additional bonus which is not fixed||The returns vary but in most cases are higher|
|Risk||These are a low-risk investment option||These are medium to high-risk investment options depending on the funds you chose to invest|
|Life Cover||Yes||Yes, but not too high|
Traditional plans offer multiple benefits to you in case you plan to buy one. Below are some of the benefits of traditional insurance plans
At the time of maturity, you receive a lump sum amount depending on the amount you have paid as a premium (except term insurance plan).
If the policyholder passes away, the beneficiary receives the basic sum assured along with the bonus, if any. The amount received can be used for paying off any unpaid debts and liabilities. It can also be used by the beneficiaries to continue manage their lifestyle expenses.
The premium you pay towards traditional plans is eligible for tax deduction every year as per Income Tax Act in India.
Your returns are risk-free, and you have an idea of how much amount you will receive and when. It helps you plan your future in a better way.
Traditional insurance plan comes with inbuilt riders like Accidental Death Benefit. With some plans, you have an option to add multiple riders to enhance your current insurance plan.
There are several life insurance plans in the market because different people have different financial requirements and needs. A traditional insurance plan is best suited for you if:
The table below shows features of both the plans
|Criteria||Traditional Insurance Plan||ULIPs|
|Purpose||Pure insurance scheme||Investment cum insurance scheme|
|Reason to buy||Fixed returns over the long term||Gives insurance plus investment benefits over the long term|
|Regulated by||Insurance Regulatory and Development Authority of India.||Insurance Regulatory and Development Authority of India.|
|Risk||Risk is low||The risk depends on the choice of funds one decides to invest in|
|Returns||Returns are low since the risk is low||Returns are market-linked and depend on the investment fund|
|Who Should Buy?||If you want protection against mishaps in life and are fine with low returns||If you are looking for higher returns on your investment along with a limited amount of life cover|
|How is your money invested?||Invested in low-risk instruments and a part goes to insurance coverage. A small percentage goes to the insurance company to manage your funds||You have the option to choose where your money is invested. A part goes to insurance cover and a small part goes as commissions to the insurance company|
|Tax Benefit||Yes, under Section 80C||Yes, under Section 80C|
|Lock-in Period||Until maturity||Usually, 5 years, varies from company to company|
|Secure||Yes, highly secured||Less secured compared to traditional plans|
|Option to switch funds||No||Yes|
|Investment Horizon||Long term||Long term|
The best money back plan helps you achieve both your medium and long-term goals. It also gives you a life cover. Here are some features of the best money-back policy:
This is an insurance plan that offers you a combination of saving and insurance. In this plan, a part of your premium goes to life cover. The remaining amount is invested for good returns. If the policyholder outlives the policy term, he receives a maturity benefit. In the event of the death of the policyholder, the nominee gets the death benefit.
The plan also offers regular bonuses that get added to your corpus. The bonus amount is either paid on maturity to you or as a death benefit to your nominee, along with the sum assured. The returns are lower since the risk is zero in the endowment plan.
This is a unique insurance plan that gives a percentage of the sum assured to you periodically as a survival benefit. You can use the regular payment received to meet your short-term goals. If the policyholder passes away, the nominee receives the sum assured (in addition to periodic payment received by the insured).
For example, if you buy a 20 year money-back policy with a sum assured as Rs 10 lakh. You will receive 20% of the sum assured every five years. So, you will receive Rs 2 lakh in the 5th policy year, 10th policy year, 15th policy year, and the remaining on maturity along with bonuses if any.
These are the simplest form of life insurance plans and very easy to understand. These are very affordable plans and should be considered by everyone. With a term insurance plan, you get death risk cover for a specified period. The period could be 10 years or 30 years. In an unfortunate event during the policy term, the nominee receives the death benefit. It is a pure risk cover plan, and hence the premium you need to pay is low.
You also have an option to add riders to the plan and widen your coverage. The death benefit is paid to the beneficiary as monthly pay outs, lump sums, or a combination of both. If the insured outlives the policy term, there are no pay outs or maturity benefits.
Whole life insurance gives you life cover for a lifetime (up to 100 years of age in some policies). In case of the demise of the policyholder, the nominee receives a death benefit along with bonuses, if any. If the insured outlives the age of 100 years, they receive a matured endowment coverage from the insurance company.
You have an option of partial withdrawal after the completion of the premium payment term. The premium for a Whole Life Insurance plan is slightly higher compared to the term plan.
There are different types of traditional insurance plans, and they differ in terms of the benefit they provide to you. In general, a traditional insurance plan works as below:
An insurance plan is an agreement between an insurer and insured that offers financial protection to the insured in case of any unforeseen life situations. The insured pays premiums as per the plan's terms, and the insurer promises to pay the sum assured.
A guaranteed income plan is a scheme where you are entitled to receive a guaranteed return upon your investment irrespective of market or fund performance.
The traditional insurance plan offers the below benefits:
Yes, ULIP is an excellent investment option for you if you are looking for dual benefits of life insurance cover and investment with higher returns. The risk is slightly higher in ULIPs.Read More
The major difference between SIP and ULIP is that ULIP offers you a life insurance whereas SIP has no such facility. ULIPs are complete self-functioning funds, whereas, in SIP, you have to put money at regular intervals into a mutual fund.Read More