ULIP vs Term Insurance
  • What are ULIPs & term plans?
  • Difference b/w both
  • Which one is best?
ULIP vs Term Insurance
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Difference Between Term Insurance Plans & ULIPs

ULIPs, also known as unit-linked investment plans and term insurance plans, both are a kind of life insurance product. While term plans are pure protection plans that do not come with any market-linked investment component, ULIPs are investment plans that offer both life cover and returns through different market funds that the policyholder chooses to invest in.

Both of them operate very differently from each other and help insured persons to meet a set of future goals and objectives. ULIP (Unit Linked Insurance Plan) allows policyholders to create wealth by providing dual benefits of security or savings.

On the other hand, term insurance is a pure protection plan to safeguard your family's financial future in the event of your unfortunate demise.

Basics of Term Insurance and ULIPs

Term Insurance and ULIP plans have their pros and cons. Both plans were designed to meet very different needs and operate differently. The only thing common in these two financial tools is they both provide life coverage in the event of policyholder demise.

Check out the table below to compare both plans under a few parameters.

Parameters Term Insurance ULIP
Type of plan Pure protection plan Dual Benefits of investment + protection
Who should buy? People who seek to safeguard their family's financial future in their absence. ULIPs are suitable for long-term financial goals seeking protection and the creation of wealth.
Investment No investment feature. Premiums paid towards the policy are divided into two portions apart from life cover; this plan invests some of the premiums in the various fund options to provide returns.
Life Cover Both plans provide life cover
Returns Term insurance does not offer any returns, only death benefit. ULIPs offer higher market-driven returns compared to other traditional investment products.
Premiums Term insurance offers high life cover in exchange for very low premiums. ULIP significantly has higher premiums due to a variety of charges.
When to Buy? It’s advisable to buy a term insurance plan at the early stage of life. ULIPs can also be bought at an early age and for long term.
Maturity Benefits No maturity benefits. You'll get maturity benefits along with investment returns.
Tax-Savings Premiums are eligible for tax deductions; the death benefit is tax-free. Premiums and maturity benefits are eligible for tax benefits.
Lock-in Period No lock-in period. ULIPs have a 5-year lock-in period
Death Benefit Your nominee will receive a death benefit in the event of your unfortunate demise.

Benefits of Term Insurance Plans and ULIPs

The following are the primary benefits of unit-linked insurance plans and term insurance plans.

Term Insurance Plan (Unit Linked Insurance Plan)
A term plan is a pure protection plan that offers life coverage to your dependents in the event of your untimely demise. ULIPs come with dual benefits of security and savings in a single plan. They provide both life insurance coverage and investment.
Term plans offer high life cover in exchange for very cost-effective premiums, making them a popular choice among buyers. Premiums during the lock-in period may have allocation charges covering administrative and distribution costs.
The beneficiaries will get death benefits, which they can use to maintain living standards during tough times. ULIPs allow flexibility in enhancing your investment portfolio through top-ups to make investment opportunities due to changes in the market or changes in financial priorities over time.
The plan has extra flexibility to choose the policy tenure based on need and the type of premium payouts. ULIPs have a lock-in period of 5 years, during which the policyholders cannot withdraw funds.
Unlike the TROP plan, term insurance does not provide any maturity benefits if you outlive the policy term. Some ULIPs allow the policyholders to make withdrawals of up to 10 percent of the total amount of premium paid after completing the mandatory lock-in period.
You can add optional in-built riders on your base plan to enhance coverage for specific conditions, such as critical illness or accidental death benefits riders. You can add riders to your ULIP plans as well such as wiver of premium due to critical illness, waiver of premium due to disability, accidental death benefit rider and more.
Premiums paid for the policy are eligible for tax deduction under Section 80C, and death benefits are typically tax-free under Section 10(10D). A policyholder can avail of tax deductions up to Rs. 1.5 lacs on the policy premium amounts paid towards the ULIPs under sections 80C, and maturity benefits are tax-free under Section 10(10D).
A term plan is a straightforward plan with a clear focus on providing financial security in case of your demise. ULIPs are long-term investment plans that offer you the flexibility to invest your funds in the market, such as equity, growth fund, secure fund, or balanced fund, based on your risk appetite and financial goals.

Terms Insurance & ULIPs: Which One is Best For You?

Indeed, choosing between both financial products may depend on your needs, future goals, responsibilities, and security because ULIPs and term insurance serve different purposes.

  • Term Insurance This plan is quite handy if your family is dependent on your income and you want to secure your family's financial future in your absence. It is ideal for those who especially seek a cost-effective plan along with a large insured sum.
  • ULIPs On the other hand, ULIPs are financial products that offer the benefit of life insurance coverage and investments. In the unfortunate demise of the policyholder, your family gets a death benefit. If you outlive the policy, you'll get a return on investment along with maturity benefits to help you achieve long-term goals. The death benefit of ULIPs is lower than that of a term plan, the premiums are costlier and the returns are sometimes minimal due to various charges imposed on them.
  • Therefore to conclude, if you wish to leave a large death benefit for your dependents then you should opt for a term plan and if you wish to have a long term investment for creating wealth then go for ULIPs.

Conclusion

Hopefully, through the details mentioned above, you now have a fair idea of the difference between a Term Plan and ULIP. In a ULIP vs. Term Insurance, which one is best for you solely depends on your financial goals, expenses, other investments, and future financial objectives. For further assistance, you can reach out to our insurance experts at PolicyX.

ULIP vs Term Insurance : FAQ's

1. What happens after maturity in ULIP?

Once you outlive the policy term, you'll get a return on investment along with maturity benefits. However, the maturity benefit will be equal to the Fund Value.

2. Which one should I buy, a ULIP or a term plan?

Term insurance has quite affordable premiums and gives higher death benefit, and ULIPs give you a chance to create wealth, but the premiums can be relatively high.

3. Are term insurance and ULIP the same?

No, ULIPs and term insurance serve different purposes, term plans are pure protection plans and ULIPs are investment plans.

4. Does ULIP offer guaranteed returns?

No, the returns of the investment funds may vary depending on the market performance.

5. Can I withdraw my ULIP?

ULIP withdrawals can be made after a 5-year lock-in period, and you can withdraw up to 10 percent of the total amount of premiums paid.

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What Our Customers Have to Say

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Sanjeev

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May 20, 2024

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May 20, 2024

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I was looking for a term plan to secure the future of my family. So I contacted PolicyX and one of their representatives Mr. Vaibhav helped me choose SUD Life term plan.

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I recently purchased a Pramerica term insurance policy from Policyx.com. The customer service team was very helpful in answering all my queries and guiding me through the application process. I...

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PolicyX’s dedicated support made renewing my Bandhan Life Insurance policy easy. I’m absolutely delighted with the service offered by PolicyX Insurance Advisor.

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I bought a Bandhan Life Insurance through PolicyX, and I must say the level of communication and assistance I have received has been truly impressive.

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Yash Tomar

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After getting advice from the PolicyX experts, I chose a Bandhan Life Insurance term plan. Thank you, PolicyX, for helping me buy a term plan at such a low premium.

Sahil Singh Kathait

Written By: Sahil Singh Kathait

Sahil is a passionate content writer with over two years of expertise in the insurance domain. He uses his knowledge in the field to create engaging content that the customer can relate to and understand. His passion lies in simplifying insurance terminology, ensuring a hassle-free understanding for potential policyholders. With his outstanding collaborative efforts with people, he understands different perspectives and keeps readers' viewpoints at the forefront of his content writing approach.