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Understanding The Difference Between ULIP And Term Insurance

Updated On Nov 07, 2021

Human life is fragile, and while we try not to think about death, it is always looming on the horizon. True, you can't put a monetary value on life; it's about the people you meet, the family you establish, and the effect you make via your work. However, it is critical to obtain a life insurance policy in order to minimize the impact of death on those individuals and their legacy.

Life insurance provides financial protection against a variety of life-related events, including but not limited to death, disability, accident, and retirement.

A death or disabling injury can leave emotional scars, but it can also exacerbate financial difficulty owing to lost income. Life insurance can help you prepare for such eventualities.

However, when you decide to purchase an insurance policy, you must make several considerations, one of which is picking between the various insurance products available on the market, specifically between a ULIP and a term plan.

Here's a quick explanation of how Unit Linked Insurance Plans (ULIPs) differ from typical term insurance plans in terms of serving distinct purposes. These characteristics are generally determined by your goals, and because these programs cater to diverse requirements, you may make an informed decision.

Understanding The Difference Between ULIP And Term Insurance

Here is a clear understanding of the difference between ULIP and Term Insurance:

1. Term Plans And ULIPs In Terms Of Scope And Nature, They Differ

The fact that ULIPs combine insurance and investment into a single package distinguishes them. Because ULIPS are market-linked, they are more likely to generate larger returns depending on market conditions. Here's how they work: you pay a portion of your premium for life insurance, and the rest is invested in the market, in funds of your choosing, according to your risk profile and risk appetite. 

Term plans, on the other hand, operate in the classic sense; they are simply insurance products that are risk-free and have fixed returns. These types of insurance products provide assured maturity proceeds and invest in low-risk return opportunities. It functions as a financial mechanism to replace your income in the family in the terrible event of your untimely death. Riders can be added to the base policy to expand coverage beyond the basics, such as an accidental death benefit, critical sickness benefit, and so on.

2. Suitability

If you're seeking a long-term investment, ULIPs are a good choice. The benefit of life insurance is included in the overall package. The investing component is what makes ULIPs so appealing. Term insurance policies are designed to provide regular income distributions to the family or dependents of a deceased breadwinner or to provide you with a return on all premiums paid if you survive the duration of the policy.

3. Risks And Returns

ULIPs are the way to go if you're looking for a little risk in exchange for a larger long-term return. This also explains why most ULIPs include a 5-year lock-in period, including the ULIP. With your ULIP investments, there's more adventure to be had. You can choose from plans that provide regular income benefits to your dependents to plans that will reimburse you for all premiums paid if you live to the end of the policy's term.

4. ULIPs As Investment Vehicles vs. Other Investment Instruments

ULIPs are investment vehicles with strong personalities. As a result, if you want to invest in the market but lack the necessary expertise, ULIPs are a perfect method to do so by delegating the actual work to fund managers. You can choose between equities funds, fixed income security funds, or a hybrid/balanced fund for your investing and risk profile. As your risk appetite changes as your financial demands and life circumstances change, you can choose between these products.


Term insurance is a type of insurance that pays out if the policyholder dies. In other words, it ensures the financial security of your family even if you are not present. It serves as a cost-effective financial substitute.

It covers your nominee for the duration of the plan with no premium progression, notwithstanding the absence of an investment element. Similarly, by combining the basic policy with eminent add-ons, the supplied benefit can be enhanced.

Also read - Exploring The Significant Features Of ULIPs

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