Insurance plans play an extremely important part in financial planning as different policies enable you to invest, save and insure your finances for the future. These plans include a variety of traditional insurance plans and ULIP (Unit Linked Insurance Plans). But, as far as these two go, it can be confusing to catch the difference between them if you do not have a strong knowledge of terms and the workings of the insurance sector. So, here’s everything you need to know to understand how ULIP is different from traditional insurance plans.

What is a Traditional Insurance Plan?

A traditional insurance plan, also known as whole life insurance, money back or endowment policies, provides life insurance for the entirety of the insured person’s life. The sum assured is paid out after their demise to the nominated beneficiary.

What is ULIP?

A Unit Linked Insurance Plan is a type of insurance that gives you investment and saving opportunities along with life insurance, all combined in a single plan. It can be used to grow your money over time with the guarantee of a death benefit if the insured person passes away during the policy tenure. If the insured person survives the policy term, a maturity benefit is paid out to the nominee.

These are the main points that make ULIP different from a traditional insurance plan:

• Transparency: When you invest in a ULIP, you can easily track your portfolio if the company declares its holdings. These plans give you regular updates about your funds, unlike traditional plans, which do not allow this as the investment premiums and funds are the same. 

• Withdrawal: Most ULIPs have an initial lock-in period that you need to follow, after which withdrawals are allowed. On the other hand, traditional plans do not allow withdrawals before maturity and you could have to suffer losses if you opt for it.

• Flexibility: ULIPs offer a lot of flexibility in terms of investment. You have control over what portion of your premiums you would like to go towards investments and what portion should go towards insurance cover. This gives you the freedom to make the right decisions by thinking over future expenses. This type of flexibility is not available in traditional insurance plans.

• Switch: ULIPs allow you to switch between the funds linked to your plans. This gives you the freedom to alter decisions in the future and make sure you are always doing the right thing for yourself and your loved ones. Switching between funds is not an option in traditional plans.

These are the main points that differentiate between ULIPs and traditional insurance plans. Keeping this in mind, along with more differences, you can make the correct choice of insurance plans for your family. 

You can learn more about the benefits of ULIP on ICICI’s website, one of the most well known and trusted insurance companies in India. Along with reliable information, you can also check out the various Unit Linked Insurance Plans offered by them and invest in one to secure your family’s financial future.