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ULIP or Term Plan: Which One Should You Buy?

Updated On Jul 17, 2021

Life insurance comes in various categories. Each category features its own pros and cons. When a plan is purchased all the advantages and disadvantages are considered. However, when a person has to make comparisons between the categories too, the process of selection becomes even more difficult. 

If you too are confused between ULIP or term insurance and not able to decide the better one for you, know that you are not alone. Many life insurance policy buyers often get confused between ULIP and term insurance. So, let us shed light on both the types to have a better understanding. 

What is Term Insurance?

Term insurance is a life insurance type that provides cover for a specific time period. Term insurance covers only one risk and that is death. Under this policy type, one gets the flexibility to choose the term of their plan. Term insurance plans are known to have high premiums since they are plain insurance plans. It must be kept in mind that a halt in payment of the annual premium at any point results in policy cease. 

What is ULIP?

ULIP or Unit Linked Insurance Plans offer life insurance cover along with an investment avenue. It must be noted that one part of the premium is used as mortality charge to provide insurance, while the other premium part is invested in bonds, debts, equities, or a hybrid fund like investment options. When the plan matures and it is the time to receive the payout, the policyholder is allowed sum assured and/or the fund value of the unit-linked investments.

Term Plan vs ULIP - Comparing the Benefits 

  • Affordability - While term insurance comes at a low premium rate, ULIP has a high premium rate due to multiple charges associated with it.
  • Financial Security - In term insurance, the nominee receives the sum assured. While in case of ULIP, the nominee receives sum assured. The money invested could also be used to ensure financial stability.
  • Investment Flexibility - While term insurance policies do not allow investment of money for the future, ULIPs come with investment options like market funds, debts, equities, and more that can be picked as per one’s risk appetite and other financial considerations.
  • Tax Benefits - While in the case of term insurance, life insurance premiums up to Rs. 1.5 lakh per annum are exempt from taxes under Section 80C of the Income Tax Act and death benefit received by beneficiaries is fully exempt from any taxes as per Section 10 (10D), in case of ULIPs, all payouts received are exempt under section 10D of the Income Tax Act, 1961. Moreover, one is eligible for tax rebates for premiums paid under section 80C.

Final Words

It is quite clear that both the policies serve different purposes. While term insurance is a more risk-free way of securing financial stability having low premium and high sum assured, ULIPs come with investment options as well as life cover and help one enjoy maturity benefit as well as long term financial goals. 

So, which one is the ideal choice? Well, it is advisable to buy both so as to secure yourself and your loved ones financially and gather funds for life post retirement. 

Also Read

Saving For The Child: How To Decide The Best ULIP For Your Child?

How Can ULIPs Help You Fulfil Your Long-Term Financial goals?

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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