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Understanding The Difference Between ULIPs And Term Plans

Published On Dec 21, 2021 12:00 PM By InsuranceDekho

The most basic sort of life insurance product on the market is a term insurance plan. If the policyholder dies, the insurance should provide death payments to the beneficiaries. In your absence, it provides financial security for your family. Some assurers include maturity benefits to make the program more flexible. To take advantage of this offer, you must have the premium cover returned. If you live to the end of the policy's term, the assurer will reimburse you for the premiums you paid.

ULIPs are basically an insurance product. However, the policy also permits you to invest in funds of your choosing. As a result, ULIPs are known for providing both life insurance and investment protection. A portion of the premiums paid goes toward life insurance, while the rest is invested in market-linked funds. You (the policyholder) have the option of investing in debt funds, equity funds, or a combination of both. This decision is based on your risk tolerance.

ULIPs give you the freedom to switch funds to get a higher market return. So, if your stock market investments aren't performing well, based on your risk appetite and market performance, you can move (from debt to equities and vice versa).

Understanding The Difference Between ULIPs And Term Plans

Below are a few distinctions between the two best plans- ULIPs and Term Insurance:

  • Tax Benefits

Term insurance premiums are tax-deductible under Section 80C of the Income Tax Act of 1961. In addition, Section 10 of the Internal Revenue Code exempts the death benefits received by the beneficiaries from taxation (10D).

ULIP premiums are tax-deductible under Section 80C, just as term insurance premiums. In addition, Section 10D of the Income Tax Act of 1961 exempts the payouts from taxation.

  • Refunds (If Any)

Term Insurance: If you (the policyholder) die prematurely, you will be eligible for death benefits. If you have the return of premium coverage, your assurer will reimburse you for the premiums you paid as a maturity benefit if you live to the end of the policy term.

ULIP: It all depends on how well the funds you've invested in have performed in the market.

  • Financial Security

Term Insurance: If you (the policyholder) die, the sum assured amount will be paid to the plan's beneficiaries.

ULIP: If you die, the sum assured amount (selected in the life insurance) will be paid to your beneficiaries. Furthermore, the recipients will receive the earnings on your assets.

  • Investment Flexibility

Market funds, debts, equities, and other investment alternatives are available with ULIPs. Depending on your risk appetite and other financial considerations, you can choose any of them. You can even move between funds to maximize your earnings.

Term plans, on the other hand, do not let you invest for the future, and there is no payout if you outlive the policy.

  • Financial Security

In the event that you pass away, the sum promised will be paid to your nominee.

The sum promised will be paid to your nominee in the event of your death. Furthermore, the money invested may generate returns dependent on market conditions, assisting you in achieving long-term financial objectives.


Term insurance providers are by far the most potential solutions to protect the prospects of your family members if your death occurs. They're especially beneficial if one wishes to do that for a minimal price and a significant amount assured. ULIPs, on either hand, provide insurance coverage as well as market opportunities. Unlike term insurance, you may earn a maturity benefit and attain long-term objectives due to the obvious investment returns.

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

Also read: 

5 ULIP Charges You Must Know About

Are ULIPs A Good Investment Option For Long Term Wealth Creation

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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