Comparison of Unit Link Insurance Plan and Whole life Insurance
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by: Nail
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Talk to
any insurance advisor and you are bound to be bombarded by hordes of different
kinds of insurance policies. Is it any surprise that a normal person gets
confused when choosing a right insurance policy for his needs? Advisors take
advantage of this buyer’s ignorance and promote those policies that fetch them
the highest returns. Two such widely promoted types of insurance policies are
unit link insurance plan and whole life insurance plan. However there are quite
a few differences between these policies. We take a look at how both these
policies differ.
- Unit link insurance plan:
Unit link insurance plan or ULIP is the most widely promoted type of
insurance plan. When you pay a premium, you are given a insurance cover
and part of premium is invested in the fund of your choice. In the initial
years, a major part of the premium goes towards buying an insurance cover
and remaining portion is invested. Most unit link plans offer choice of 3
funds: pure equity, balanced which contains a mixture of debt and equity
in varied proportion and pure debt. Depending on your risk appetite as
well as market scenario, you can choose appropriate fund(s). You can also
switch between funds if the market condition or your personal circumstance
changes. However the drawback of unit link insurance plan is the high
charges. Also many advisors mis-sold these plans by telling that there is
no need to keep on paying the premium for the duration of the plan, just
three years would suffice. Though conceptually this is correct, fund will
keep on debiting its charges from the amount invested. So if there is no
sufficient amount in your account to pay these charges, your life cover
will cease and you’ll have to buy a new policy.
- Whole life insurance: A whole
life insurance policy is an insurance policy that provides you with
insurance cover for as long as you live or 100 years, whichever is
earlier. This means when buying a whole life insurance you have to keep on
paying premiums till the end. Due to this drawback, this plan lost out to
ULIP. To combat this Tata AIG has introduced its Mahalife Gold where you
need to pay premiums just for 12 years while the life cover continues till
your death. In addition, you start getting 5% of sum assured from sixth
year onwards along with bonuses accrued. Once 12 years are over, you can
use this money as pension for old age. However unlike ULIP, a whole life
insurance plan does not give you flexibility of investing as per your risk
profile. Also their charges are not transparent.
Study your risk profile. Do you want to earn higher
returns while enjoying insurance cover? Do you want the flexibility of deciding
where your monies would be invested and know what are the charges for buying an
insurance? Then an unit
link insurance plan is your best bet. But if you want an
uninterrupted life cover without any increase in premium, then a whole life
insurance plan is right for you.
About the Author
Business Planner and Marketing Manager Online Employed with Bharti AXA Life, a specialist provider of unit link insurance plan.
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