Prime Differences Between ULIPs And Term Plans

A unit-linked insurance plan (ULIP) can help you build wealth while also protecting your assets. You can invest in a wide range of market-linked funds with a ULIP. The market-linked funds into which the policyholder puts his or her money are determined by the policyholder's risk tolerance and financial objectives. The investment in a ULIP grows in lockstep with the market's growth. 

A term insurance policy offers coverage for a specific period. The policyholder can choose how long the policy will last. Term insurance is a type of life insurance in which the entire premium is utilised to cover the policyholder's life. A maturity benefit is not included in a term insurance plan. On the policyholder's death, the money assured is paid out. Because there is no maturity benefit, the entire premium amount is used to cover the life assured. When compared to other insurance plans, term insurance is an economical insurance plan because it has lower premium rates and a higher sum assured.

Prime Differences Between ULIPs And Term Plans

Below are ways in which ULIP are different from Term Plans:

1. Surrender Value

If you do not pay your term insurance premium, your policy will lapse. If a ULIP is relinquished during the lock-in period, the fund value until the end of the lock-in period is paid out after appropriate charges have been deducted, according to the policy's terms and conditions. The insurance provider must pay out the fund value if the ULIP is relinquished after the lock-in period has expired, and there are no surrender charges. Term insurance plans and unit investment trusts (ULIPs) each have their own set of benefits and drawbacks. After reviewing the ULIP vs Term Insurance comparison, it is clear that neither plan is superior to the other. Which of the two is preferable for you depends on your needs and goals. If you want to invest in debts or stocks, a ULIP is a superior option because it allows you to build money while still safeguarding your family from life's unpredictable events. You could, however, choose a term insurance plan to protect your loved ones.

 2. Savings Component

Under a single policy, a ULIP policy combines the advantages of savings and protection horizons. Policyholders have the option of investing in stock, debt, or a mix of the two. A savings component is not included in a term insurance plan. In term insurance, the full premium is used to cover the assured's lifetime.

3. Tax Benefits

Section 80C of the Income Tax Act covers the tax advantages of term insurance investments. A deductible of up to 1.5 lakhs is applied to the premium you pay for the policy. The beneficiary's death benefit is also totally tax-free under Section 10 (10D).

Section 80C of the Internal Revenue Code allows you to claim a tax refund for the premium you paid. In addition, under Section 10, any payment made to the beneficiary is tax-free (10D).

4. Financial Security

The term coverage provides complete financial security for your family in the event of an accident. The assurer will pay the sum promised to the nominee in the case of your untimely death before the conclusion of the policy term.

In the case of your untimely death, the assurer will pay the sum promised to the nominee, along with the investment returns, as required by the unit-linked insurance plan.

Conclusion

Term insurance plans are by far the most reliable method to protect the futures of your family members if you pass away. They're incredibly beneficial if you wish to do so for a low fee and guaranteed significant cash. ULIPs, on the other hand, provide life insurance as well as capital investments. Unlike term insurance, you can earn a maturity benefit and attain long-term goals because of the returns on investment.

Because the two strategies have different goals, you should not pick between them. Both can assist you not only preserve your family's financial future but also develop a fund for your pension and other future needs. As an outcome, adding a ULIP to your term plan, or conversely, is an excellent option.

Also read - Understanding The Concept Of Lock-In Period In ULIPs

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.