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Term Insurance V/S ULIP: Which is Better?

It can be tough to choose the correct life insurance plan based on your needs when purchasing life insurance. Term insurance plans and Unit Linked Life Insurance Plans (ULIPs) are two prominent options. ULIPs are life insurance-cum-investment plans in which a portion of the premium is allocated to provide life insurance coverage, and the remaining portion is invested. Term insurance plans are pure protection plans that can provide a substantial lump sum benefit in the event of the policyholder's death. Understanding the two products, their characteristics, and benefits is critical before picking between a term plan and a ULIP.

What are Term Insurance Plans?

Term insurance is the most basic and straightforward insurance that solely provides comprehensive life coverage. Term insurance offers the most coverage at affordable rates. In this case, coverage is provided for a set period of time. In the event of death during the term, the nominee will be paid the sum insured amount. However, no maturity benefit will be given at the end of the policy's term. However, term plans on the market are priced more to recoup the premium paid after the maturity period. Term insurance is a pure insurance policy that protects your life sufficiently.

What are Unit Linked Insurance Plans?

A unit-linked insurance policy is a combined product offered by insurance firms providing insurance and investment benefits. A small portion of the payment is used to cover insurance, while the remainder is invested in several fund options (debt, money market, or equity-oriented funds) that you select. Maturity rewards will be paid out of the fund's value. If the policyholder dies within the policy period, the sum insured or the fund value, whichever is greater, will be paid to the nominee. ULIP plans are available for various investment goals, including wealth growth, children's education, marriage, and retirement. ULIPs give life insurance as well as the opportunity to build wealth.

Also read - How Purchasing Term Insurance will Safeguard Your Family?

Term Insurance V/S ULIP

A comparison of ULIPs and insurance plans is presented below.

Purpose - Term insurance plans provide insurance coverage only, whereas ULIPs provide both insurance and investment benefits.
Tenure - The tenure of a term plan should be decided based on the age of the person. It's a good idea to obtain insurance until your family is financially reliant on you. To receive the best return on investment, ULIP plans should be held for 10 to 15 years.
Investment - Term insurance premiums are not invested in any way. However, a portion of ULIP premiums is invested in various funds.
Returns - Term insurance policies solely provide death benefits. Furthermore, there is no refund of the premium. ULIPS, on the other hand, is an investment that's linked to the stock market. As a result, returns are determined by the type of funds chosen for investing and market conditions.
Affordability - To provide life insurance, term insurance premiums solely include mortality charges, making it affordable. On the other hand, premium allocation charges, policy administration charges, mortality charges, fund management charges, premium redirection expenses, switching charges and so forth are all part of a ULIP. The premiums can be relatively high due to the number of charges associated with it.  
Lock-In Period - There is no lock-in period with a term insurance policy. Premiums must be paid to ensure that coverage is maintained for the duration of the policy. In contrast, a five-year lock-in period is included with the ULIP product.

Conclusion

Term life insurance policies and unit investment trusts (ULIPs) have different features and serve different objectives. While a ULIP provides life insurance as well as the option to invest according to your risk appetite, investing strategy, and financial goals, a term plan offers financial security to your dependents through sufficient life insurance cover. You can get a suitable term life insurance plan or unit-linked life insurance plan by carefully assessing your demands.

You may also like to read - How Much Term Insurance Cover Should One Buy?

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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