Simplifying Life Insurance in India
What is the Difference Between ULIP and Term Insurance Plan?
Both Unit Linked Insurance Plans (ULIP) and term insurance policies are essential financial instruments providing monetary protection. However, these differ significantly from each other in one key aspect. Therefore, knowing the differences between term insurance vs. ULIP is essential to select the one you need.
Keep reading to learn further details about ULIP and term insurance, and their differences.
What Is a Term Insurance Policy?
What is ULIP?
ULIP is a type of insurance plan where the premium that you pay is divided into two parts. One part of this money is used as your premium for an insurance policy. The remaining part is invested in different types of ULIP funds. These investments can incur immense profit and lead to wealth creation.
Now that you have a clearer idea, let us proceed to learn the difference between term insurance and ULIP.
What Are the Differences Between Term Plan and ULIP?
The difference between ULIP and term plan is as follows:
|
Parameters |
Term Insurance |
ULIP |
|
Function |
Serves as insurance only. |
Serves as both insurance and investment. |
|
Who Should Purchase |
If you are the only breadwinner of your family or want financial security for your family. |
If you are looking for both an insurance and investment option within the same plan. |
|
Who Can Benefit |
Your nominee in case of your untimely demise. |
You and your family members both can benefit from the returns. |
|
Investment Options |
The entire premium is used for life coverage and not invested in money market funds. |
A part of your premium is invested in money market funds for wealth creation. |
|
Insurance Options |
The entire sum is used for insurance premiums. |
Some amount is kept aside as insurance premiums. |
|
Returns |
It offers death benefits to the nominee on raising a claim. |
Depends on the volume of money and market performance of the fund. |
|
Right Time to Purchase |
In the early stages of life. |
Any time when you want to purchase it. |
|
Cost of Premiums |
Comparatively lower than ULIP |
Significantly higher than a term insurance policy. |
|
Lock-In Period |
No lock-in period |
About 5 years |
|
Additional Charges |
No additional charges are associated with a term insurance policy. |
Numerous – for paying agents, switching between funds, fund allocation charges, and fund management fees. |
|
Security |
Highly secured |
Involves risks |
|
Switching Options |
You cannot switch within the plan. |
You can easily switch between the fund types to maximise profit. |
|
Selection Criteria |
Choose a cover keeping in mind your family’s needs. |
Select a fund according to your investment pattern and return expectations. |
|
Financial Protection |
In case of your untimely demise, your nominee can receive the sum assured. |
In case of your untimely death, your nominee can receive both the sum assured and returns of investment in the ULIP funds. |
|
Policy Tenure |
You can select any tenure according to your convenience. |
You have to select a tenure beyond 5 years. |
FAQs on the Difference Between Term Insurance and ULIP
Can I receive a tax benefit on the claim amount in the case of ULIPs?
What are the benefits of ULIP?
The benefits of ULIP are as follows:
- You can seek financial protection and indulge in wealth creation with only one premium.
- You can receive tax benefits up to ₹5 Lakhs on your insurance premiums.
- There are several fund types available from which you can select one as per your investment choice.
When is the right time to invest in ULIP?
Can you surrender a term insurance policy?
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
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