Know the Difference Between Term Life Insurance and ULIPs

A term insurance offers financial stability to the life assured's family in an emergency, whereas a ULIP combines life insurance with investing options. Many financial gurus, however, suggest term insurance over ULIPs. To make a sensible financial decision, you must first grasp and compare the different characteristics of both policies. The following article compares both the policies to assist you in making your decision.

What is a Term Insurance Policy?

A term insurance policy is acquired for a set length of time. Here, the appointed nominee receives death benefits if the life assured passes away with the policy tenure. So, to avoid policy termination before the plan's term is up, a premium amount is paid to the insurance provider under this plan. The plan, however, does not provide maturity benefits to the life assured if he/she lives to the end of the policy term.

What is a Unit Linked Insurance Policy (ULIP)?

This plan combines the benefits of a life insurance policy and investment opportunities into a single package. The insurance provider invests a portion of your premium in equity, debts, mutual funds, and bonds based on the life assured's preferences. At the same time, the remainder is set aside for life insurance.

Term Insurance Policy Vs. Unit Linked Insurance Policy

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

1. Utility - A term insurance policy is suitable for the family's lone breadwinner  as it guarantees financial security after his/her death. ULIPs, on the other hand, are best suited for those seeking long-term high returns as well as life insurance.
2. Policy Nature - A term insurance policy is purely protective, providing just life insurance, whereas a unit linked insurance policy provides both life insurance and investment options.
3. Policy Returns - There are no returns in a term insurance plan because there are no investing opportunities. Only the sum assured is paid if the life assured dies during the policy term. ULIPs, on the other hand, provide returns that are impacted by market performance and the amount of money invested.
4. Ideal Time to Purchase - To receive high coverage at cheap premium rates, it is best to buy term insurance between the ages of 25 and 35 years. ULIPs, on the other hand, can be purchased at any moment to meet your financial demands.
5. Policy Period - You can calculate the period after which your dependents will no longer require financial protection before purchasing a term insurance policy. A ULIP, on the other hand, can be acquired for 10 to 15 years and provide significant investment returns.
6. Extra Charges - A term insurance policy has no additional expenses other than the premium, but ULIPs have agency fees, policy administration fees, fund management fees,  fund allocation charges, fund switching charges, and so on.
7. Maturity Benefits - 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.
Security - A term insurance policy is a very safe investment, however ULIPs are not as safe owing to market swings.

Take Away

Both life insurance policies are intended to accomplish distinct goals. This is why it is prudent to purchase the most suited plan for your financial needs as well as your family's future goals and aspirations. You can also seek the advice of a financial counsellor or an insurance agent to assist you in making wise financial decisions.

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