ULIP vs Life Insurance

Individuals planning to buy insurance are often confused with the choice between Unit Linked Insurance Plans (ULIPs) and traditional Life Insurance policies. Both options serve as an important tool in financial planning. Understanding the fundamental differences between ULIPs and Life Insurance is essential for making an informed decision that aligns with your financial goals and circumstances.

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What is ULIP?

A Unit Linked Insurance Plan is a type of investment plan that combines the dual benefits of insurance and investment. Unlike traditional insurance policies that focus solely on providing a life cover, ULIPs allow policyholders to invest in a range of funds, typically including equity, debt, or a combination of both. The premiums paid towards a ULIP are divided into two parts: one for insurance coverage and the other for investment.

Key Features of ULIPs

  • Dual Purpose: ULIPs serve the dual purpose of providing life insurance coverage and acting as an investment tool.

  • Flexibility: You have the flexibility to choose the funds you want to invest in based on their risk appetite and financial goals.

  • Fund Options: ULIPs offer various fund options, including equity, debt, and balanced funds, allowing investors to align their investments with their risk tolerance.

  • Lock-in Period: ULIPs come with a lock-in period, typically five years. During this period, withdrawals are restricted.

  • Switching Options: Policyholders can switch between different funds based on market conditions and their investment objectives.

What is Life Insurance?

Life insurance is a contract between a life insurance company and a policyholder, in which the insurance company promises to pay a sum of money to one or more named beneficiaries when the insured person dies in exchange for premiums paid by the policyholder during their lifetime.

If the policyholder dies while the policy is in force, the beneficiaries will receive the death benefit, which is a lump sum payment. The death benefit can be used to pay for funeral expenses, outstanding debts, living expenses for the family, or any other purpose that the beneficiaries choose.

Key features of Life Insurance

  • Death Benefit: This is the amount of money that the insurance company pays out to the beneficiaries upon the death of the insured person. It is generally tax-free for the recipients.

  • Premiums: These are the regular payments made by the policyholder to the insurance company. The amount and frequency of premiums can vary depending on the type of policy, the coverage amount, and other factors.

  • Riders: These are optional add-ons to a life insurance policy that provide additional benefits or coverage. Common riders include accidental death, waiver of premium (in case of disability), and long-term care.

Difference Between ULIP and Life Insurance 

ULIPs Life Insurance Policies
Investment Component Combines insurance with investment. Policyholders can invest in various market-linked funds. Primarily focused on providing life coverage, with no investment component.
Returns Returns are market-linked, and you can enjoy the profits.  Fixed returns 
Flexibility Offers flexibility to switch between different funds based on market conditions. Limited flexibility; usually no options for investment choice.
Risk Subject to market risks as returns are linked to the performance of underlying funds. No market risks, as returns are predetermined and guaranteed by the insurance company.
Transparency Provides transparency in terms of fund performance, charges, and policy value. Very less transparency 
Tax Benefits Eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act. Eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act.
Liquidity Allows partial withdrawals or surrender after a specified lock-in period. Limited liquidity and withdrawals may be subject to penalties.
Long-Term Perspective Encourages long-term investment due to market-linked nature. Typically designed for long-term financial security and stability.

Which One is the Best Option?

While both ULIPs and traditional life insurance policies serve the essential purpose of providing financial security, ULIPs stand out as a versatile financial tool that combines insurance and investment benefits. The flexibility, market-linked returns, tax advantages, and transparency associated with ULIPs make them a compelling option for individuals looking to not only protect their loved ones but also grow their wealth over time. But considering the unique advantages of ULIPs, they certainly warrant serious consideration in your financial planning endeavors.


Ultimately, the choice between ULIPs and traditional Life Insurance should be based on an individual's financial goals, risk tolerance, and investment horizon. It's crucial to carefully evaluate one's needs and consult with a financial advisor like Policybazaar to determine which type of policy aligns best with their long-term objectives and risk appetite.


  • Is ULIP better than life insurance?

    ULIPs and life insurance are both financial products that can provide financial security for you and your loved ones. ULIPs can be a good option for people who are looking for a financial product that offers both insurance and investment benefits. However, it is important to carefully consider your individual needs and risk appetite before choosing a ULIP.
  • What is the difference between term life insurance and ULIP?

    Term life insurance is a pure protection plan that provides a death benefit to your loved ones in case you pass away during the policy term. ULIPs, on the other hand, are hybrid products that offer both insurance and investment benefits.
  • Is ULIP a life insurance?

    Yes, ULIPs are a type of life insurance. They offer a death benefit to your loved ones in case you pass away during the policy term. However, ULIPs also have an investment component, which means that they can help you grow your wealth over time.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^Tax benefit are for Investments made up to Rs.2.5 L/ yr.
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