What is Life insurance?
Life insurance is a contract between a policyholder and the insurer. In this contract, the beneficiary receives a sum in case of policyholder’s sudden demise. In return, the policyholder must pay the insurance company premiums.
Types of life insurance:
- Term Life Insurance
- Endowment plans
- Unit Linked Insurance Plan
- Money Back Policy
- Whole life policy
What is ULIP?
Unit linked insurance plan (ULIP) is part investment and part insurance plan. Under this combined policy, the company offers insurance to you and your family while investing a part of the premium in shares/bonds etc.
Types of ULIPs
- Equity Funds
- Balanced Funds
- Cash Funds
- Income, fixed-deposit, bond funds
- ULIPs based on long-term benefit goals such as child’s education or buying a new home
- Single premium plans, guaranteed plans and ULIP for wealth creation that covers medical emergencies and retirement days
Difference between Life Insurance & ULIP
The unit-linked insurance plan does not allow you to withdraw money before the lock-in period ends. Generally, the lock-period is between 3 to 5 years. You have the right to partially withdraw lump sum payment post the completion of the lock-in period. However, partial withdrawal tends to reduce the sum assured amount.
Unlike ULIPs, life insurance offers lump sum pay-out any time when a claim request is raised. Claim request is either made in a cashless form wherein the cost of treatment is free, or in the form of reimbursements of hospital expenses.
Whenever there is an unforeseen event such as an accident or even death, the nominee receives a specific amount of sum assured based on the policy chosen.
At the time of maturity, you will receive your fund value as a lump sum. You can also avail fund value at maturity in periodical instalments over a settlement period of 5 years. The first instalment is generally paid on the date of maturity.
Life insurance policies offer to pay a lump sum payment at the end of the policy term. The pay-out includes the number of premiums you paid during the cycle as well as the bonus. Maturity benefit also means death benefit wherein the nominee receives a sum assured in the event of death during the term.
Switching to another fund option is possible with ULIPs. HDFC life allows you to switch accumulated funds to any other fund.
Health insurance companies allow porting to other insurance policy. However, switching to another life insurance is not permitted as per the current Insurance Regulatory and Development Authority of India (IRDA) rule. If you surrender your life insurance policy, you will be charged a surrender fee which is 70% more than the premium paid.
ULIPs offer you to build a corpus of funds for medical expenses. It is basically a wealth creation tool where you can avail the savings in case of a medical emergency, but only when the lock-in period is complete. You can withdraw a certain amount of cash to clear your emergency expenses immediately. If you want to avail medical emergency benefits under ULIP, you can do so by adding riders for accidental disability or major illnesses.
Almost all life insurance policies offer to cover the cost of hospitalization and critical illness treatment. In the face of the rapidly growing healthcare costs, life insurance policies offer add-on options such as critical illness cover, accidental death benefit, etc.