If you are looking at term insurance vs ULIP, it means you want to secure the financial stability of your family in your absence. Mostly, people are inclined towards term insurance, which is a good choice. But a ULIP is also a decent option if you have a long or short-term goal.
To make the best choice in term insurance vs ULIP, read the following article. You will surely encounter the option that is apt for you.
Read More: Endowment vs Term Insurance
What is term insurance?
The focus of term insurance is solely on providing financial support to your family in your absence. If the insured person expires amidst the tenure, then his/ her nominee gets the assured sum. However, there is no maturity benefit in the basic term insurance plan.
This insurance is active for a specific time that is decided by the insured. To keep the insurance ongoing, premiums are paid in continuous intervals.
When a person buys this insurance, then he/ she is confirmed to have backup monetary help for their family. But you can select the plan from different types of term insurance. All the types come with different benefits. Learn more below.
- Basic/ level term plan – As the name suggests, this is a plan that fulfills the basic requirement of insurance. It just gives the death benefit to the family of an insured person for a fixed time.
- Term plans with riders – Under this option, you can add riders in your basic term plan like critical illness benefit, accidental death benefit, etc.
- Return of premium (TROP) – In this plan, you will get back the premium paid towards the insurance, if survived the term tenure.
- Decreasing term plan – The premiums that you pay remain the same throughout the plan. But a specific percentage is deducted from the assured sum.
- Increasing term plan – By paying a higher premium every year, you can increase the assured sum.
- Convertible term plan – This plan can be converted into an endowment plan or whole life insurance if paid some extra premiums.
What is ULIP?
United Linked Insurance Plan or ULIP gives the dual benefit of insurance and investment. The premium paid is divided into insurance (called a mortality charge) and investment. The insured person can choose from the options like bonds, debts, market funds, equity, or a hybrid. You can even switch among the investments but free switches are limited.
This plan can be a good option if you want to accumulate funds for any objective. Like any other plan, you need to pay regular premiums to avail of its benefits. However, premiums for this plan are high because of some extra charges. Different types of ULIPs are available in the market.
- Equity funds – These are risky but come with the highest returns. Majorly, of the funds are invested in stocks of the companies.
- Fixed-interest, Income and Bond funds – Herein, investment is done in government securities, bonds, cooperate bonds, fixed-income securities and likewise.
- Balanced funds – Under this, the investment is divided into fixed-interest and equity funds. It gives stable returns because of being invested in both high and medium-risk funds.
- Cash funds – This is the category of the lowest-risk funds. It includes money market funds like cash and bank deposits.
Term insurance vs ULIP – What to choose?
A little bit more light is needed to completely understand the concept of both policies. Let’s compare term insurance vs ULIP on various parameters and have a clear view of both plans. Examine the table below.
|Type of Plan||It is solely for having life insurance.||It plays a dual role of being an insurance and an investment.|
|Returns||This does not give any returns but only death benefits.||Returns are received on how well the funds are invested and the market is performing.|
|Premiums||Premiums paid in term insurance are comparatively low because of which it is widely purchased.||Premiums paid in ULIP are high because it has multiple charges.|
|Where premium goes||Premiums are fully paid towards the insurance.||Premiums are divided into insurance and investment.|
|Charges||No extra charges apart from regular premiums are required to pay.||It contains several charges related to agent, policy administration, allocation of funds, fund switching and fund management.|
|Investment||No investment is made under term insurance.||In this plan, half investment is made in different funds having different risks.|
|Tax benefits||A deduction can be claimed against the premiums paid to the company. The death benefits received are completely tax-free.||ULIP can also claim for premiums deduction. The pay-outs provided are without taxation.|
|Maturity benefits||This plan does not give maturity benefits in its basic form. You need to go with the returns of premium option.||You can redeem the funds invested anytime.|
|Objective||To have secured finance in the absence of the breadwinner of the house.||Someone who wants to have insurance plus long-term savings to achieve a goal.|
|Lock-in period||This plan has no lock-in period and hence needs renewal every year.||This plan at least has 3 years to 5 years of lock-in time.|
|Security||It is a secured plan because of the confirmation of providing a death benefit to the nominee.||The portion of the assured sum is secured. However, the other part of the investment is not much secure because if the value of market funds falls, it will not give much return.|
|Policy tenure||It depends upon the term plan you purchased.||For any withdrawal, you need to wait until the lock-in time gets over.|
Both, term insurance vs ULIP, serve the main motive of buying any insurance that is providing financial support in his/ her absence. However, some aspects of the policies can divide the attention of a buyer. To avoid any confusion, search for the reason. Are you looking for insurance only or want an investment too? Your objective will clear the doubt in term insurance vs ULIP and help you reach the answer. So, without any del