Unsure of the best policy type to choose to invest your money and secure your future? The two leading options in the market include term insurances and ULIPs. Choosing between the two requires a ton of thought as your future and more importantly, that of your loved ones- and its security, as well as the needs you can fulfil in a short-term and long-term sense, are all affected by the type of policy you choose. Let’s take a look at the merits and demerits of both to help you decide:
1. Term Insurance
A term insurance is a type of insurance that provides you cover for a fixed time period, or a term. If the insured person passes away during this term, then a sum of money (which depends on the policy type and the premium amount) is paid to the family.
● By covering the risk of unforeseen circumstances, term insurances allow you to have a means to take care of your family, no matter what. This is one of the reasons why this type of policy is so sought-after.
● When compared to other insurance plans, a term insurance can cover you for a much larger amount at a much lower premium. For instance, as an individual in his/her 30s, you can arguably be insured for an amount like 1 Crore over a term period of 30 years (the amount and term will vary with certain policies and this is just an example). The sum your family gets, therefore, is usually quite substantial and can ensure a good future for them.
● Term insurance policies are offered for a fixed time period and if the insured person does not pass away during that time, the insurance providers do not have to pay you any sum. Therefore, there is no component of saving money here. However, you can add an endowment plan that offers a component of savings to your basic life insurance policy, but the premium and cover will vary.
ULIPs stand for Unit Linked Insurance Plans. They are a type of life insurance product that allow you to put your money in investments like stocks, bonds, or mutual funds, while also providing a certain amount of risk cover. These investments are made in the capital market and come with the risks related to them.
● If you have identified a future need for funds that isn’t contingent to an unforeseen event, then ULIPs can be the ideal investment policy for you. Whether you are planning for your retirement, educating your child abroad, wedding expenses for your children, or anything else, you can ensure that you can amass a realistic sum needed by a certain amount of time with wise and early planning.
● ULIPs are considered ideal for investors across various stages in life as they are investment policies that are easy to take out and maintain. They also allow investors to monitor their portfolios as they grow.
● The minimum lock in period with most ULIPs is 5 years. This means that if you need to withdraw funds on short notice in case of an emergency, you might not be able to access the ones you have been saving if the maturity date as not arrived. Certain policies do allow you to take out the money before the maturity date, but in this case you have to pay suspension charges for the same. In a time of emergency, these additional charges can be rather frustrating.
With a term insurance and ULIP, there are many advantages disadvantages. Choosing the right policy depends largely on being able to identify your own needs and future plans. You can then decide what kinds of funds will be required and which policy suits these needs the most.
Whichever policy you choose, both are beneficial in the sense that you are taking steps to provide stable financial security to your family.