ULIP’s and Traditional policies both work alike. A part of the premium is set aside for life cover and the rest is invested in a fund after deducting charges.
The main advantage of a ULIP is that the investor knows exactly about the break-up of his premium into life cover, the fees being paid and the amount being invested in a fund. The performance of the funds can also be tracked as the returns are linked to the market performance. On the other hand, in traditional policies, no information about the break-up of charges is shared with the investor. He also does not know whether the bonuses paid to him every year are all that his fund has made or whether the company is giving him only a share of the profits. Policies encourage savings whereas ULIPs take the investment path and hence have higher growth options.