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What Makes ULIP And Term Insurance Different From Each Other?

Published On Oct 13, 2021

Term insurance is a type of life insurance that only pays out in the event of death. Simply put, it ensures financial stability for your family in the event of your death. It essentially functions as a cheap income replacement mechanism in the event of your premature demise. It protects your nominee for the term of the policy without any changes in the premium, despite the fact that it does not have an investment component. 

Whereas Unit Linked Insurance Plans, or ULIPs, combined life insurance with an investing opportunity. The premium you pay is split into two parts: one is used to cover mortality expenses and the other is invested in bonds, loans, equities, or a hybrid fund. You'll be entitled to the sum assured and/or the fund value of the unit-linked assets when the plan reaches its maturity date.

What Makes ULIP And Term Insurance Different From Each Other?

Some of the key differences between ULIP and Term Insurance are mentioned below:

1. Affordability

Because ULIPs have a lot of fees attached to them, the premiums can be significantly higher than term insurance.

Term plan premiums are among the most affordable on the market.

2. Financial Well-being

If you die while holding a ULIP, the sum promised will be paid to your nominee. Furthermore, the money invested could receive returns dependent on market conditions, assisting you in achieving long-term financial goals.

In the event that you die while on a term plan, the sum assured will be paid to your nominee.

3. Flexibility In Investment

Term plans, on the other hand, do not let you save for the future and do not pay out if you outlive your policy.

Market funds, debts, equities, and other investment choices are available alongside ULIPs. Depending on your risk level and other financial considerations, you can choose from any of them. To maximize your gains, you can even switch from one fund to the next.

4. Benefits From The Tax System

Life insurance premiums up to Rs. 1.5 lakh per year are excluded from taxation under Section 80C of the Income Tax Act. In addition, the death benefit received by beneficiaries in a term plan is totally tax-free under Section 10 (10D).

Section 10D of the Income Tax Act of 1961 exempts all payouts received. Premiums paid under section 80C in a ULIP are also eligible for tax breaks.

5. Risk And Life Cover

Term insurance plans are the safest approach to protect your loved ones' futures in the event that you pass away. They're especially beneficial if you want to do so for a modest premium and a large sum assured. 

ULIPs, on the other hand, offers both life insurance and investment options. Because of the returns on investment, unlike term insurance, you can receive a maturity benefit and achieve long-term goals. 

You should not choose between the two policies because they serve different aims. Including both in your financial portfolio can help you not only protect your family's financial future but also establish a fund for your retirement and other future requirements. As a result, it's a good idea to add a ULIP to your term plan or vice versa.


You're probably aware that term insurance and ULIPs are diametrically opposed. Despite the fact that they are both insurance products, they serve different purposes. Term insurance safeguards your household economically in the event of your early demise, whereas ULIP premiums are split into two parts: one for insurance and the other for investment in various funds.

A ULIP strives to safeguard your financial future through investment, whereas Term Insurance protects your family in the event that you are unable to provide for them. It's not a good idea to compare and contrast their aims and benefits because they're so diverse. If you're still unsure about the difference between ULIP and Term Insurance, go with the one that best suits your needs.

Also read - Why One Should Not Exit 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.

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