Term Plan vs ULIP
A perfect financial portfolio includes an adequate mix of savings, investments, and insurance. It isn’t very easy to choose one among the numerous insurance instruments available in the market. Every insurance product serves a separate purpose, but you must be clear about your purpose and make a perfect match with the insurance instrument. Though the ultimate objective for buying a financial instrument is only to secure the future of loved ones, as financial security serves different causes of life, they are available in various kinds. Any two financial instruments can contradict each other. Two such plans are term insurance and ULIP, out of which term insurance is the most traditional one while ULIP is the latest and modern one. Let’s have a discussion to conclude the term plan v/s ULIP.
What is a term plan?
Term insurance is the simplest and the basic life insurance that is a pure risk coverage instrument. It works as financial protection to the insured’s family and gives death benefits to the beneficiary if the policyholder dies within the policy tenure. Read more here – What is Term Plan
What is the ULIP plan?
Unit Linked Insurance Plan(ULIP) is an insurance instrument that gives the option to invest in the fund of your choice. The premium paid by the insured is divided into two parts, out of which one goes for insurance, and the other part goes for investment into the market-linked funds. Thus, ULIP offers the dual benefit of insurance as well as investment. Read more here – What is ULIP
Difference between ULIP and the term plan
| Particular | Term Insurance plan | ULIP |
| Category | It is purely a life insurance product. | It deals with insurance and investment. |
| Lock-in-period | It does not pose any lock in period. | It poses a five year lock-in-period. |
| Premium | As the term plan is the primary life insurance instrument, its premium is relatively cheap and reasonable when compared to other insurance products. | ULIP is associated with n-number of charges, hence the premium is a bit high. |
| Investment | Premium is not invested into any fund. | A part of the premium is invested in different funds. |
| Tax benefit | The premium paid towards term insurance is claimable for tax deduction under section 80 C of the income tax act 1961. Even the death benefit received by the dependent is also tax-free under section 10 (10D) | Premium paid towards ULIP is also claimable for tax deduction under section 80 C of the income tax act 1961. Also, the payouts are tax free under section 10 D like in term insurance. |
| Policy term | It entirely depends upon the term you have chosen while investing in the policy. | You must wait until the lock-in-period gets over to surrender the policy or even get partial withdrawal. |
| Suitable for | It is suitable for those who want to buy a reasonable insurance coverage policy with a high sum assured. | It is suitable for those who wish to make long-term investments with insurance coverage. |
| Charges and fees | The policyholder has to pay no charges. | The policyholder has to pay many charges like agent fees, fund allocation charges, policy administration charges, fund management fees, fund switching charges, etc. |
| Ideal time | One must buy a term plan between 25 to 35 years of age. It is more beneficial to buy it earlier. | One can buy it at any time according to needs, availability of funds, and savings intentions. |
| Maturity benefit | Until the policyholder chooses the ‘return of the premium’ rider, the insured will not get any benefit if he survives the term, but in case of the insured death, the beneficiary will get the sum assured. | Maturity benefit in ULIP entirely depends on the unit value of the funds in the market. |
Conclusion
The above tabular differentiation must have given you a clear picture of both insurance plans. It is clear that the term insurance and Unit Linked Insurance Plan are separate insurance plans with entirely different benefits and features. One must analyze the needs and goals before deciding to invest in either or both. One must check the risk appetite and the financial objective before choosing one among them. Opting for the right and most suitable plan that fulfills your financial goals is necessary.
