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Difference Between ULIP And Term Insurance

Updated On Apr 22, 2021

A life insurance policy ensures financial protection to the life assured in the events of contingencies associated with life, including death, accident, disability and retirement. However, at the time of purchasing an insurance plan, the policy buyers often have many options to consider such as deciding amongst the wide variety of insurance plans available in the market, especially when it comes to choosing between a ULIP plan and a term plan.

What are ULIP and Terms Insurance Plans?

ULIP is a market-linked plan, which offers the policyholder both life cover as well as investment options via a single product. The premium paid by the policyholder goes partly into the life insurance and the remaining is invested in the markets into the policyholders choice of fund depending upon your risk appetite and financial considerations.

On the other hand, a term insurance plan works traditionally by solely functioning as an insurance product. They are risk- free and provide fixed returns. It helps your family by providing financial assistance in your absence. The policyholders can choose to include riders to their basic plan and hence extends the coverage beyond life to accidental death benefits, and much more.

Also Read:- How Does A ULIP Work?

Difference Between ULIP Plan and Term Plan

The key differences between both ULIP and Term plan are highlighted below:



Term Plan


ULIP stands for Unit Linked Insurance Plan that offers the policyholder a life cover alongside an investment avenue.

A term insurance offers the policyholder a life cover for a specific term, it could be between 5 years to whole life.

Financial Security

In case anything happens to the policyholder, the nominee would receive the sum assured. Moreover, the invested money could earn returns depending upon the market conditions and can further assist them policyholders in meeting their long term financial goals.

The nominee would receive the sum assured in case the policyholder passes away during the policy term.

Investment options

Here a variety of investment options are here such as debts, market funds etc. The policy buyer can choose from the options available depending upon their financial considerations and risk appetite. The policyholders can even switch from one to another fund so as to earn most yields.

The term plan does not allow the policyholders to invest their money for the future. Also, no payouts are there that can outlive the plan.

Tax Benefits

All the payouts received by the policyholders are exempt as per section 10 D of ITA. Moreover, the policyholders are also eligible to receive tax rebates under ITA section 80C.

Under section 10(10D) of the income tax act, the death benefits that are given to the nominee are fully exempt from any taxes. Also, as per section 80C of the Income Tax Act premiums on life insurance up to a limit of Rs 1.5 lakh per annum are exempted from the taxes.


A variety of charges are associated with ULIP, therefore, so the premiums as compared to term insurance are considerably high.

While premiums for the terms plans are supposed to be the cheapest in the insurance market.

You May Also Like To Read:- Insights On ULIPs VS Traditional Life Insurance Plans

Term Plus ULIP Combo For Optimal Returns Risk And Tax Savings

Final Words

ULIP and traditional term insurance plans exist to serve varied needs, if you want to yield returns based upon your risk consideration, then term insurance plans are not the best option for you. While term insurance is risk free and offers financial protection to your loved ones in your absence, ULIPs provide life cover alongside investment opportunities. Both the policies meet different objectives, therefore consider the afore-mentioned points and choose the policy that best meets your individual needs.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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