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Difference Between ULIP and Term Insurance Plan

Updated On Jul 09, 2021

A term insurance policy provides financial security to the life assured’s family in the case of an unfortunate event, while a ULIP offers investment opportunities along with life coverage. Although, many financial experts recommend a term insurance plan over a ULIP. However, to make an informed financial decision, you must first understand and compare different aspects of both policies. The following article compares both the plans that will help you in the selection process. 

What is a Term Insurance Policy?

A term insurance policy is purchased for a pre-decided period within which if the life assured dies, the beneficiary is provided with death benefits. Under this plan, an affordable premium amount is paid to the insurance provider to avoid policy termination before completing the plan tenure. However, the plan does not offer maturity benefits to the life assured if he/she survives the policy tenure. 

What is a Unit Linked Insurance Policy (ULIP)?

According to this plan, a twofold advantage of a life cover and investment opportunities can be availed under a single plan. The insurance provider invests a part of your premium amount in equity, debts, mutual funds and bonds according to the life assured’s wants and wishes while the rest of the amount is saved for life coverage. 

Term Insurance Policy Vs. Unit Linked Insurance Policy (ULIP)

Here is the detailed comparison between a term insurance policy and a unit linked policy which can help you determine the better option for yourself.

1. Ideal For - A term insurance policy is ideal for the sole breadwinner of the family to ensure their financial protection after his/her demise. On the other hand, ULIPs are best suited for individuals who wish to gain long term high returns along with life coverage.

2. Ideal Time - It is advisable to purchase term insurance between the age of 25 - 35 years to get high coverage at low premium rates. In contrast, ULIPs can be bought anytime according to your financial needs and requirements.  

3. Ideal Tenure - A term insurance policy should be purchased by calculating the period after which your dependents won’t require financial protection. In contrast, a ULIP can be purchased for 10 - 15 years to get good investment returns. 

4. Insurance & Investment - A term insurance policy is a pure protection policy that offers life coverage only, whereas a unit linked insurance policy has dual benefits of life coverage and investment opportunities. 

5. Returns - As there are no investment opportunities in a term insurance plan, there are no returns. Only the sum assured is paid after the death of the policyholder within policy tenure. In contrast, ULIPs offer returns that are influenced by market performance and investment money. 

6. Extra Charges - There are no extra charges other than the premium amount in a term insurance policy, whereas, ULIPs include agent fees, policy administration fees, fund allocation charges, fund management fees, fund switching charges etc. 

7. Lock - In Period - A term insurance policy has no lock-in period and needs to be renewed every year, whereas, a ULIP has a minimum lock-in period of 3 - 5 years. 

8. Maturity Benefits - A term insurance policy does not provide any maturity benefits. On the other hand, ULIPs can help you redeem some units at the current unit prices.

9. Switching - a term insurance policy does not have a switching option, whereas you can switch the fund options available with the plan with some fees.

10. Security - A term insurance policy is a highly secure plan whereas ULIPs does not offer good securities due to market fluctuations. 

Take Away

Both life insurance policies are designed to serve different purposes. Hence, it would be wise to purchase the most appropriate plan according to your financial needs and family’s future goals and aspirations. You can even consult a financial advisor or an insurance agent to help make a sound financial decision. 

Also read - Life Insurance: Types of Life Insurance in India in 2021

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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