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Difference Between ULIPs And Term Insurance

Updated On Aug 27, 2021

Life insurance provides financial protection against various life-related events, such as death, disability, accident, and retirement, to name a few. Death or disability can leave emotional wounds, but it can also exacerbate financial difficulty owing to lost wages. Life insurance can assist you in making provisions for such events. However, there are other decisions to be taken when purchasing an insurance policy, one of which is picking between the various insurance products available on the market, specifically between a ULIP plan and a term plan. Let us look at certain features of both the policies that make them different from each other. 

What are Unit-Linked Insurance Plans (ULIPs)?

Unit-linked insurance plans (ULIPs) are a type of insurance plans that also serve as an investment opportunity. Since ULIPS are market-linked, they are more likely to generate larger returns depending on market conditions. Under a unit-linked insurance plan, you pay a portion of your premium for life insurance, and the rest is invested in the market, in funds of your choosing, based on your risk profile and risk appetite.

What are Term Insurance Plans?

Term insurance plans operate in the classic sense. They are exclusive insurance products that provide risk-free and fixed death benefits. In the tragic event of your premature death, it functions as a financial vehicle to replace your income in the family. Riders can be added to the basic policy to expand the coverage to include things like accidental death benefit, critical illness benefit, and so on.

What is the Difference Between ULIPs And Term Insurance?

Here's a full comparison of term insurance vs unit-linked insurance to help you decide which is the better option for you.

  • Appropriate For - A term insurance policy is ideal for the family's sole breadwinner to guarantee financial security after his/her death. In contrast, ULIPs are suitable for individuals looking for a combination of long-term high returns and life insurance.
  • Ideal Age - Term insurance should be purchased between the ages of 25 and 35 years to have maximum coverage at reasonable premium rates. In contrast, ULIPs can be purchased at any time to match your financial needs.
  • Ideal Tenure - When purchasing a term insurance policy, you can determine the duration after which your dependents will no longer require financial protection. Whereas a ULIP can be purchased for a period of 10 to 15 years and provide substantial investment returns.
  • Investment & Insurance - A term insurance policy is a pure protection policy that only provides life coverage, whereas a unit-linked insurance policy provides both life coverage and investment opportunities.

Must read: Why Is It Important to Renew a Term Insurance Plan?    

  • Returns - There are no returns in a term insurance plan because there are no investing opportunities. Only the money assured is paid if the policyholder dies during the policy term. ULIPs provide returns that are influenced by both the market and the amount invested.
  • Other Expenses - A term insurance policy has no extra charges other than the premium. In contrast, ULIPs have policy administration fees, agency fees, fund allocation charges,  fund switching charges, fund management fees and so on.
  • Lock-In Period - A term insurance policy has no lock-in duration and must be renewed every year. On the other hand, a unit-linked insurance plan has a minimum lock-in period of 3 to 5 years. 
  • Maturity Advantages - There are no maturity benefits with a term insurance policy. ULIPs, on the other hand, can assist you in redeeming some units at current unit pricing.
  • Switching - A term insurance policy does not provide a switching option, but in the case of a ULIP, you can switch the plan's fund alternatives with certain fees.
  • Security - A term insurance policy is a pretty safe investment. However, ULIPs do not provide adequate security owing to market changes.


Both of these insurance products exist to meet quite distinct needs; term insurance plans are a different tool for risks and rewards. ULIPs are a hybrid of insurance and investment, and the criteria used to evaluate them differ significantly from those used to assess regular term policies. Hence, it is advised to make your decision based on your personal and professional goals and future aspirations. 

Also read: Make the Most of Your Term Insurance Plan with Its Tax Benefits

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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