Term Insurance OR ULIP

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder  

It is always recommended to have backup plans for tough times so that financial crises don’t put you in stress or discomfort.

And when it comes to getting oneself insured, the plethora of options almost makes it overwhelming to choose the right one.

It is important to note that each insurance plan comes with its own positives and negatives, offering one main benefit of insurance. The purpose of insurance is to protect your family in unexpected circumstances or situations.

ULIP OR  term insurance often tops our minds when it comes to getting financial coverage for oneself. Today, we’ll discuss ULIP vs term insurance and understand which is better for you.

What Is Term Insurance?

As the name suggests, term insurance provides life cover for a specific period of time. You have the flexibility to choose this term, and it could be anything between 5 years to your entire life. Since these are plain insurance plans, their premiums are highly affordable. However, if you stop paying the annual premium at any point, the policy will end. Additionally, it’s important to note that there is no payout at the end of the term should you outlive the policy. The insurance covers only one risk – death.

Features Of Term Insurance

Let’s discuss the different features or characteristics of term insurance policies when it comes to ULIP OR  Term insurance.

Pure protection

Term insurance focuses on providing life insurance coverage for a specific term. It doesn’t allow policyholders to invest further and accumulate wealth for the long term.

Affordability

Term insurance plan provides coverage for a certain period, which is the reason behind low premiums and affordability. It makes it suitable for individuals with low budgets and looking for protection of dependents/families in case of unexpected demise.

Death benefit

It offers a sum assured to the dependents or nominees of the policyholder on his demise. This provides financial planning/protection to the families, allowing them to arrange funds without stress.

Flexible policy terms

You can choose a policy term based on your specific needs or requirements. It also allows you to add riders¹  to the policy to enhance its coverage, making it flexible in nature.

No maturity benefits

Term insurance, unlike other plans, does not offer any maturity benefit. It means if you outlive the policy, you won’t be eligible for any benefits and have to renew the policy.

Riders for additional coverage

You have the option to add riders¹, such as critical illness riders¹, to enhance the coverage of the policy. This may add to the premiums but offers additional coverage, too, at an affordable rate.

Tax benefits

Premium payments are eligible for tax deductions under section 80C of the Income Tax Act. Also, the death benefit is eligible for tax exemption under section 10(10D).

Easy claim process

These plans usually come with an easy and hassle-free claim process. This ensures your loved ones are able to cope with finances in case you pass away.

What Are ULIPs?

ULIPs, or Unit Linked Insurance Plans, provide you with life cover along with an investment avenue. One part of the premium you pay is used as mortality charges to offer you insurance, and the other part is invested in various investment options such as bonds, debts, equities, or a hybrid fund. When it is time to receive the payout upon maturity of the plan, you’ll be entitled to the sum assured and/or the fund value of the unit-linked investments.

Features Of Unit-Linked Insurance Plans

Let’s discuss the different features or characteristics of ULIPs.

Dual benefit

ULIPs usually offer dual benefits of insurance coverage and investment options. Hence, along with getting insurance, you have the opportunity to create wealth under a single plan.

Investment options

Based on your risk appetite, goals and preferences, you have the opportunity to invest in different investment avenues. These avenues can be debt, equity or a mix of both.

Flexibility

There is flexibility in choosing investment options, sum assured and premium payments. Hence, you can make switches based on your goals and income levels.

Transparency

ULIPs offer transparency in the sense that you are made aware of the performance of investments along with charges levied on you. Also, you can ask for the value of investments, sum assured, policy tenure, etc.

Lock-in period

These plans often come with a lock-in period, as certain policies allow you to withdraw after five years. This allows you to stay patient and remain invested to witness long-term benefits.

Partial withdrawals

A few plans may allow partial withdrawals after the completion of the lock-in period. This allows you to arrange funds during emergencies.

Tax benefits

ULIPs offer tax benefits u/s 80C of the Income Tax Benefit. Also, the proceeds may be tax exempted under section 10(10D), making it a great tax-saving tool.

Mortality charges

These mortality charges are calculated by subtracting the death benefit and the current fund value. However, as the policy tenure grows, mortality charges also decrease.

Premium allocation charges

It is the percentage or proportion of the first year’s premium paid that goes towards allocation charges by the insurer before the policy allocates or starts.

ULIP OR Term Insurance: The Benefits  

Now, let’s see the major difference between term plans & ULIPs and learn about them in more detail.

The Winner?

Term insurance policies are the most risk-free way of securing the future of your loved ones in case something happens to you. They are specifically useful if you are looking to do that at low premiums & for a high sum assured. On the other hand, ULIP policies offer investment opportunities along with life cover.  Term insurance plans, offer maturity benefit & fulfil long-term goals, only because of the returns on investment.

Both policies serve different purposes, & therefore, you should not pick one over the other option. Adding both to your financial portfolio will not only help you in securing the financial future of your family & loved ones but also build a corpus for your retirement & other future needs. That is why it's wise to add your term plan with a ULIP plan, or vice versa. To protect your loved ones, click here. To fulfil all your financial goals, click here.

FAQs

Should I buy ULIP or a term plan?

You should buy a plan that aligns with your goals and objectives. If your goal is to get yourself insured while investing money and creating wealth for the long term, ULIPs are ideal in such cases. However, if you can’t pay high premiums and only want death coverage, term insurance is the right option for you.

What is the difference between ULIP and term plan?

The primary difference between ULIP and term insurance is that ULIP offers dual benefits of investment and insurance. However, term insurance offers pure life insurance coverage. ULIPs offer guaranteed death benefits, while term insurance doesn't guarantee returns on the policy's expiry.

Is ULIP a good investment?

ULIP is a good investment for anyone looking for an option that allows them to invest along with getting themselves insured. It offers decent returns and flexibility and allows you to create wealth over time.

Is ULIP and term insurance the same?

No. ULIP and term insurance are not the same. While both offer life insurance, ULIP offers an extra benefit by allowing policyholders to invest and create wealth over time. Term insurance does not offer any option to save money or invest it further to generate returns.

Which is better: ULIP or mutual funds?

No one investment avenue is better than the other. What makes an investment option the right fit for you is your goals, objectives, risk appetite, income, age, dependents, etc.

Related Articles

• ULIP Tax Benefits
• Benefits of Term Insurance
• Income Tax Benefit on Life Insurance - Section 80C and 10D
• Term Insurance V/S ULIPs – Is One Better Than the Other?
  
• ULIP Vs Pension Plans: Which is better for Retirement
• Understand the Terms of ULIP Plans

ARN - ED/04/24/10533