Learn the Difference Between ULIP and Term Insurance

Are you looking for investment instruments that can help to secure the financial future of your loved ones when you are not around? In that case, you can consider investing in Unit-Linked Insurance Plans (ULIPs) and term insurance. However, both these insurance plans have different features, terms and conditions, and benefits. So, let us understand the difference between ULIP and term insurance so that you can decide which policy can meet your needs.

If you are wondering about what is ULIP, then allow us to explain it to you. ULIP is a type of insurance policy that offers the dual benefits of life insurance and investment in equity or debt fund in a single policy. Therefore, it is one of the most popular investment instruments to safeguard your financial future and avert the monetary crisis that your family may have to face in case of an untoward event. Part of your premium that you pay towards the policy is used for investing in equity, debt, or a mixture of both according to your risk appetite, to grow your wealth. In case you live through the term of your ULIP investment plan, you are entitled to receive survival benefits. Such type of benefit is derived from the part of the premium that is invested in equity or debt fund. The nominee of your policy will receive the death benefit in case of an unfortunate incident during the policy’s duration. 

Conversely, a term insurance plan is the purest and simplest form of a life insurance policy. When you buy a term plan, you secure your life for a specific term by paying the set premium. The premium you pay towards the policy is utilized to insure your life and is not invested in any fund. Here, the nominee will get the death benefit if something tragic happens during the plan’s tenure. If you survive the duration of the policy, you will not receive any maturity benefit, 

Now that you know the primary difference between the two life insurance plans, let us compare them on various parameters.

  • Risk 

As a term insurance plan is a straightforward life insurance policy, no risks are associated with it. In the case of a ULIP investment plan, the equity fund’s performance is based on the nature of the capital market. So, equity-oriented ULIPs are risky. 

  • Returns 

As a term policy only covers the risk of death, it does not provide any returns. On the contrary, ULIP provides life insurance and can offer a significant return on investment during the long term. The returns depend on the type of funds that you select. 

  • Switch option 

As there is no investment involved in a term insurance plan, there is no option to switch among funds. On the other hand, ULIP allows you to move your investments from one fund to another. This facility enables you to avoid the risk due to the uncertainty of the equity market. In such a scenario, you can switch from equity funds to debt ULIP funds.

Besides this, both the plans provide tax benefits under Section 80C and 10(10D) of the Income Tax Act 1961. Moreover, they offer riders that you can select based on your set financial goals.

If you are searching for a life insurance policy but do not wish to take any risk, you can invest in a term plan. However, if you have a risk-bearing capacity and want to earn high returns on investment, you can consider investing in ULIP funds. Today, in such uncertain times, it is important to insure your life as well as secure your family’s monetary well-being. So, analyze your requirements and select the suitable insurance policy accordingly.