Types of life insurance policies

Insurance plans can be distinctly divided into ULIP (Unit Linked Insurance Plans) and traditional plans. Before making a decision whether to opt for a traditional insurance policy or a ULIP, an investor has to understand the principles and the way both these financial instruments operate.

Unit Linked Insurance Plans offered by insurance companies allow policy holders to direct part of their premiums into different types of funds (equity, debt, money market, hybrid etc.) Here the risk of investment is borne by the policyholder.

Conventional Plans are traditional insurance plans. They usually invest in low risk return options and offer guaranteed maturity proceeds along with declared bonuses.

Unit Linked Insurance Plans give you flexibility to invest as per your risk profile, financial commitments and convenience. You can choose to invest either in equity, or in debt or in hybrid fund and even change your investment strategy.

Traditional plans do not allow you to choose investment avenues. Your funds are invested as per the strategy and discretion of the company.

Most Unit Linked Insurance Plans allow you to track your portfolio. They also regularly intimate regarding the percentage of the premium that is invested along with the charges levied. You are also kept informed about the value and number of fund units that you hold.

In conventional plans, your premiums are invested in a common 'with profits' fund and therefore you cannot track your individual portfolio.

In ULIP, At the time of maturity you redeem the units collected at the then prevailing unit prices. Some plans also offer you loyalty or additional units annually or at the time of maturity.

Conventional plans do not allow you to choose investment avenues. Your funds are invested as per the strategy and discretion of the company.

Most Unit Linked Insurance Plans allow you to track your portfolio. They also regularly intimate regarding the percentage of the premium that is invested along with the charges levied.

Traditional plans invest your premiums in a common 'with profits' fund and therefore you cannot track your individual portfolio.

In ULIP, at the time of maturity you redeem the units collected at the then prevailing unit prices. Some plans also offer you loyalty or additional units annually or at the time of maturity.

In traditional plans, at the time of maturity you get the sum assured plus bonuses, if applicable in the plan.

Unit Linked Insurance Plans allow you to make withdrawals from your fund, provided the fund does not fall below the minimum fund value and subject to other conditions.

Conventional plans do not allow you to withdraw part of your fund. Instead, some policies offer you the facility to take a loan against your investment.

Switching options are available in ULIP while it is not availabe in traditional plans.

Benefit Snapshot

Unit Linked Insurance Plans give you flexibility of investment,They allow you to track your portfolio.

Conventional plans offer fixed premiums linked to the sum assured.

Unit Linked Insurance Plans offer the benefit of a single premium top up which allows you to invest ad hoc additional amount.

The maturity benefits for traditional plans include the sum assured plus bonuses, if applicable.

Unit Linked Insurance Plans give you the option of a premium vacation.