ULIP vs. Term Insurance

The ULIP vs. Term Insurance comparison helps you understand how the two distinct types of life insurance products cater to different financial needs. ULIP (Unit Linked Insurance Plan) combines insurance coverage with investment opportunities. On the other hand, term insurance is a pure life insurance product that ensures the financial security of your family in case of your untimely demise. Understanding the differences between ULIP and Term Insurance is crucial for you to seek the right insurance solution based on your financial goals and risk appetite.

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Top ULIP Funds
Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
1,663 Cr
Returns
26.72%
Returns
27.01%
Highest Returns
Returns
20.76%
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2,894 Cr
Returns
24.45%
Highest Returns
Returns
22.83%
Returns
18.66%
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2,337 Cr
Returns
23.41%
Highest Returns
Returns
19.4%
Returns
17.94%
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961 Cr
Returns
20.27%
Highest Returns
Returns
18.65%
Returns
17.15%
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6,464 Cr
Returns
19.12%
Highest Returns
Returns
17.41%
Returns
16.85%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
11,380 Cr
Returns
24.25%
Highest Returns
Returns
23.2%
Returns
21.58%
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1,340 Cr
Returns
30.17%
Highest Returns
Returns
23.17%
Returns
19.65%
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5,651 Cr
Returns
29.27%
Highest Returns
Returns
26.75%
Returns
19.47%
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4,058 Cr
Returns
26.02%
Highest Returns
Returns
19.28%
Returns
19.28%
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5,938 Cr
Returns
24.72%
Highest Returns
Returns
18.51%
Returns
18.52%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
241 Cr
Returns
13.58%
Returns
14.47%
Highest Returns
Returns
12.81%
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344 Cr
Returns
13.28%
Highest Returns
Returns
12.53%
Returns
12.17%
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523 Cr
Returns
10.86%
Returns
10.83%
Returns
11.04%
Highest Returns
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836 Cr
Returns
13.3%
Highest Returns
Returns
11.91%
Returns
11.02%
Get Details
21 Cr
Returns
13.59%
Highest Returns
Returns
11.77%
Returns
10.81%
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Fund Name
AUM
Returns (in %)
3 Year
5 Year
10 Year
487 Cr
Returns
19.06%
Highest Returns
Returns
16.57%
Returns
16.12%
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243 Cr
Returns
7.25%
Returns
8.16%
Returns
9.18%
Highest Returns
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777 Cr
Returns
5.17%
Returns
7.26%
Returns
8.29%
Highest Returns
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305 Cr
Returns
5.9%
Returns
7.06%
Returns
8.07%
Highest Returns
Get Details
466 Cr
Returns
4.96%
Returns
7.46%
Returns
8.05%
Highest Returns
Get Details

What is a Unit Linked Insurance Plan (ULIP)?

A Unit Linked Insurance Plan (ULIP) is an investment plan that combines insurance and market-linked investments. With ULIP, a part of your premium goes towards life insurance, while the rest is invested in instruments like equity, debt, hybrid and index funds. ULIPs offer the potential for returns based on market performance, allowing you to participate in the growth of your investment. ULIPs provide both insurance coverage and an opportunity for wealth creation.

Features of Unit Linked Insurance Plan (ULIP)

The key features of a Unit Linked Insurance Plan (ULIP) are listed below:

  • Dual Benefit: ULIPs offer both life insurance coverage and investment opportunities in a single plan.

  • Investment Options: You can choose from various investment funds, like equity, debt, or a mix, based on your risk tolerance and financial goals.

  • Flexibility: ULIPs allow flexibility in switching between different investment funds, accommodating changes in financial priorities over time.

  • Transparency: The plans provide details on fund performance and charges levied. This allows you to track their investments.

  • Lock-in Period: ULIPs come with a lock-in period, during which you cannot withdraw funds. This encourages long-term financial planning.

  • Partial Withdrawal: Some ULIPs permit partial withdrawals after completion of the lock-in period, offering liquidity in emergencies.

  • Tax Benefits: ULIP premiums are eligible for annual tax deductions of up to Rs. 1.5 lakhs under Section 80C, and maturity proceeds are tax-free on premium payments of up to Rs. 2.5 lakhs annually under Section 10(10D).

  • Mortality Charges: A portion of the premium goes towards providing life insurance coverage, ensuring financial protection for your dependents.

  • Market-Linked Returns: ULIP returns are linked to market performance, providing the potential for higher returns compared to traditional insurance plans.

  • Premium Allocation Charges: Initial premiums may have allocation charges covering administrative and distribution costs.

What is a Term Insurance Plan?

A Term Insurance Plan is a pure life insurance product. It provides coverage for a specific period (term) and pays a lump sum amount to the beneficiaries if the insured person passes away during the term. Unlike other life insurance plans, term insurance does not offer savings or investment components. It is designed to provide financial protection for your loved ones in the event of your untimely demise.

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Features of Term Insurance Plan

Following are some of the key features of a term insurance plan in India:

  • Pure Protection: Term plans focus solely on providing life insurance coverage without any investment component.

  • Affordability: Term policies offer high coverage at relatively low premiums, making them a cost-effective choice for life insurance.

  • Death Benefit: The nominee receives the sum assured if you pass away during the policy term, providing financial security to your family.

  • Flexible Policy Terms: You can choose the coverage period based on your needs, ensuring financial protection during specific life stages.

  • No Maturity Benefits: Unlike traditional plans, term insurance does not provide maturity benefits if you survive the term. It is pure risk coverage.

  • Riders for Additional Coverage: Optional riders, such as critical illness or accidental death benefits, can be added to enhance coverage.

  • Tax Benefits: Premiums paid for term insurance are eligible for tax deductions under Section 80C, and death benefits are generally tax-free under Section 10(10D).

  • Simplicity: Term plans are easy to understand, with a clear focus on providing a financial safety net for the family in case of your demise.

  • Easy Claim Process: Policybazaar offers you a streamlined claim process to ensure your loved ones receive the death benefit promptly during difficult times.

  • Online Accessibility: Many term plans can be easily purchased online, simplifying the application and issuance process.

ULIP vs. Term Insurance - Comparing the Key Parameters

Parameter ULIP Term Insurance
Type of Plan Insurance + Investment Pure Insurance
Ideal For Those seeking both protection and investment growth Individuals focused on financial protection only
Investment Market-linked with various fund options No investment component
Insurance Yes, with a life cover Yes, providing life coverage
Returns (if any) Market-driven, potential for higher returns No maturity benefits
Cost-Effectiveness Relatively higher due to the investment element More cost-effective, affordable premiums
When to Buy? When looking for combined insurance and investment benefits When prioritizing financial protection with minimal premium cost
Charges Premium allocation, fund management, and mortality charges Primarily covers mortality charges
The Ideal Time to Buy When seeking a long-term financial plan with flexibility As early as possible for maximum coverage at lower premiums
Lock-in Period 5 years; encouraging long-term commitment No lock-in period; offers flexibility
Security Subject to market fluctuations, but includes life coverage Provides financial security to beneficiaries in case of your demise
Maturity Benefits Maturity amount based on fund performance No maturity benefits
Tax-Savings Premiums and maturity benefits eligible for tax benefits Premiums eligible for tax deductions; death benefits tax-free
Switching Options Allows switching between funds based on market conditions There are no switching options, as it is a straightforward insurance plan
Tenure Flexible policy term based on financial goals Fixed term chosen at the time of policy purchase
Returns Market-dependent, potentially higher returns No returns; focus on financial protection

Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer

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ULIP vs. Term Insurance – Who is the Winner?

ULIPs and term insurance serve different purposes. ULIPs (Unit Linked Insurance Plans) combine insurance and investment, offering both protection and potential returns. Term insurance, on the other hand, provides pure life coverage without investment benefits.

In a ULIP vs. Term Insurance comparison, the winner depends on your financial goals. If you seek insurance with investment growth, ULIPs may be suitable. For pure life coverage at a lower cost, term insurance is the winner. It boils down to your priorities – growth with protection (ULIP) or straightforward coverage (term insurance).

FAQ's

  • Is ULIP and term insurance the same?

    No, ULIP and term insurance are not the same. Both ULIP and term insurance offer life insurance coverage; ULIP includes an investment component, whereas term insurance is solely focused on providing a death benefit without any savings or investment feature.
  • What is the difference between ULIP and term?

    The key difference between ULIP and term insurance lies in their primary focus:
    Feature ULIP Term Insurance
    Focus Investment & Insurance Protection
    Investment Yes (market-linked) No
    Returns Not guaranteed Guaranteed death benefit
    Flexibility High Limited
    Premium High Low
    Commitment Long-term Short-term or long-term
    Suitable for Investment & protection Protection
  • What are the disadvantages of ULIP?

    While ULIPs offer the potential for both insurance and wealth creation, they come with certain disadvantages that should be considered before investing:
    • Market risk

    • Various charges like Premium allocation charges, Policy administration charges, Fund management charges, and Mortality charges

    • Lock-in period

    • Not suitable for short-term goals

  • Which is better, ULIP or mutual fund?

    Determining whether a ULIP or a mutual fund is better depends on your individual needs and financial goals. ULIPs are suitable for long-term investors comfortable with market volatility, while mutual funds can be used for both short-term and long-term financial goals.

*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
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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~Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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