Endowment vis-a-vis ULIPs, which one should you buy?

Endowment Plan v/s ULIPs

Insurance is primarily a protection plan. However, it can be a good investment opportunity too. There are various bundled insurance products that can build good cash value and corpus to achieve many long-term goals. Suitability of each life insurance plans may vary depending on the client’s goal, investing style, risk profile and insurance need and many more factors. Endowments and ULIPs are the two main insurance cum investment plans that you often suggest to your clients. Let’s take a look at both the products and which one should you pick.


Endowment plans


Endowment plans are the traditional insurance products that offer life protection along with a savings component. It helps to save regularly for a specific period of time and pays out lump sum amount on maturity as a survival benefit. Endowment policies can be with profit or without profit plans that basically invest the premium in safe financial instruments. There are many variants in endowment plans which can be recommended based on customer’s long-term goal – child education, retirement corpus and many more.


Unit Linked Insurance Plans (ULIPs)


ULIPs are a market-linked hybrid product that offers both insurance and investment opportunity to customers. ULIPs invest in the stock market through a mix of equity, growth and balanced schemes. ULIPs are structured in many ways to achieve long-term financial goals.


Similarities between endowments plan V/S ULIPs


There are few similarities between both the plans


  • Both the plans are meant for investors looking for the dual benefit of insurance and investment


  • Both are long-term financial products that pay out a lump sum at the time of maturity if customer survives the policy period.


  • Both are tax-efficient investment vehicles. Annual premium paid towards endowment plans and ULIPs qualifies for tax deduction under Section 80C of the Income Tax Act, 1961. Lump sum paid on death or on maturity is also tax-free under Section 10 (10D) of the Income Tax Act provided the sum assured is at least 10 times more than the premium.


Differences between endowments plan V/S ULIPs


 Category Endowment Plans ULIPs


Low yield investment products. Offer guaranteed return As market-linked products, they are likely to deliver higher returns based on the fund type chosen
Invests in Government bonds and fixed income bearing instruments Market-Linked Investments based on policyholder’s choice. Gives a mark-to-market advantage
Transparency Does not provide various option to invest and there is no way a customer can track his investment portfolio. ULIPs offer transparency and flexibility.
The insurer decides the instrument for investment. A ULIP investor can choose from various fund options available depending on his risk profile and return requirements.
  An investor can also track his individual portfolio.
Debt/Equity Endowment plans are debt investments with no option to invest in equity. ULIPs have a variety of funds from equity to Debt to Balance to Liquid funds for the investor to choose from, depending on his risk appetite and asset allocation.
  Thus, ULIPs provide a larger bouquet of funds from debt to equity to balanced funds to your clients.
Liquidity Endowment plans when surrendered may not be able to get back the total premium paid as there are restrictions and charges involved for surrendering the policy mid-way or partially withdrawing the investment. ULIPs allow partial withdrawals after completion of 5 years lock-in period.
These plans do not offer much liquidity. There is also no surrender charges after completion of five years of the policy.
Switching of investment In endowment plans, fund switch options are not allowed as the portfolio is the same for everyone and as decided by the insurance company. In ULIPs, an investor can switch from one investment fund to another depending on the market conditions and risk appetite.
  In fact, In fact, in ULIPs, there is no tax implication when the investor switches from equity to debt or vice versa. This is one of the best features of ULIPs, which is unique.
Death/ Maturity Benefit Sum assured along with bonuses is paid at the end of policy term i.e. on maturity or death, whichever is earlier.

In ULIPs there is two possible maturity/death benefit, whichever is earlier:


Type A where fund value of invested funds or sum assured whichever is higher would be paid on death and only Fund Value is paid on maturity.


Type B where both Fund Value and Sum Assured is paid on death and only Fund Value is paid on maturity.

  ULIPs, do not have a bonus or any other participation in profits, like endowment plans.



Both the products come with many similarities and dissimilarities. But, there are also certain unique features and additional riders offered. It’s important to know what each product offers to identify its suitability.


Suitability of Endowment and ULIP plans


Endowment plans are ideal recommendations for conservative investors seeking for an option to save regularly for their future need with a guaranteed return. Endowments can also be offered as a protection against mortgage debts. Basically, this is for customers who want to stay out of market volatility and play safe.


ULIP plans can be offered for investors with a moderate risk profile to aggressive growth seekers. As there are plenty of fund options available according to the risk appetite along with an option to switch, ULIP is an evolved product that has the potential to deliver high returns. You can advise ULIP investment for young investors seeking long-term appreciation and wealth creation.


For a clear understanding, you can also read: 5 Reasons to Sell ULIPs Again


Things to remember before choosing the suitable plan


  • Ensure your clients are not underinsured. ULIPs and endowments are insurance cum investment plans.


  • Understand the charges involved in each plan and weigh it against the benefits offered.


  • Understand your client’s risk appetite, investment objective and investing style, liquidity requirements etc to recommend the right plan.


Be clear on the choice of product you make for your customers. Your choice needs to be clearly based on customer need, investment objective, and risk appetite.



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