ULIP vs. Term Insurance

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.

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

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

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).