Is ULIP better than FD

What is the difference between life insurance and ULIP?

ULIP insurance plan

ULIP is a unit-linked insurance plan. A small part of the premium you pay goes towards life insurance. The remainder is invested in stock markets. Most ULIPs give you the option of choosing between debt securities [100% safe buy, low returns 5-7%] and stocks [high risk, returns can be around 15%]. Or a mixture of both.

ULIP is not a great way to save money. There are some hidden fees that actually reduce returns. In fact, even if the returns displayed are great, they are less. For example, the premium you pay in the first year, say Rs 10,000 / - Rs 2,500 / - goes towards commission. And let's say Rs 100 goes towards insurance. Credit Rs 7,400 / - units will be purchased in your account. Even if these grow 20%, you are still at a loss. Of course, the commissions decrease year after year and stay at 5%. Then there are fund management fees that you cannot see. There is a maintenance fee that will be deducted from your balance.

Thus, the entire charging method is not transparent.

Life insurance from LIC

There are generally two types of life insurance plans

Money back / foundation plan. The concept here is the same again, you pay a premium and part of that goes towards insurance. The remainder of the LIC is invested in safe bonds. A bonus is declared every year; usually less than bank rate. At the end of the plan, you will get more than what you paid as a premium. However, if you had kept the same with Bank FD, you would have gotten more money back. So if you die, your candidate will get insurance plus bonus. If you survive, you will receive all of the accumulated bonus.

Pure Term Plan. Here the premium for the sum insured is significantly lower. If you die, your candidate will be insured here. If you survive you won't get anything.