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ULIP vs Term Insurance

By Finserv MARKETS - Mar 12,2019
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ULIP vs Term Insurance - Key Differences Between ULIP & Term Insurance

Insurance is a way of mitigating risks. While the value of life can never be measured in monetary terms, getting life insurance offers financial stability in times of uncertainties as well as wealth creation towards your dreams.

With so many insurance companies offering different types of products, it is necessary to understand which plan you need to buy. Two of those product options are Unit Linked Insurance Plans (ULIPs) and Term Insurance.

Let us discuss ULIP and Term Insurance in detail so that you have a better understanding of the two, which will further help you choose the one that best suits your financial needs.

What Is Term Insurance?

A term insurance plan provides life insurance coverage for a specified period. You get the liberty to choose the policy tenure, and it could be anything between five years and your entire life. This is the most basic type of life insurance plan, and thus the premiums are quite affordable.

Just remember that if you stop paying the premiums, the policy is terminated. Also, no payout is given at the end of the policy term in case you outlive the policy. In simple terms, the policy covers you for only one thing – death.

What Is ULIP?

Knowing ‘what is ULIP’ is essential as unlike other insurance vehicles, this plan also allows your money to grow through market-linked investments. In Unit Linked Insurance Plans or ULIPs, a part of the premium is utilised for insurance coverage while the remaining amount is invested in funds of your choice.

At the time of maturity, you will receive the sum assured and/or the fund value of the unit-linked investments (whichever is higher in value).

Difference Between ULIP and Term Insurance

Consider the table below for a better understanding of ULIP and Term Insurance based on different parameters:-

Unit Linked Insurance Plans (ULIPs) Term Insurance
Type of Policy ULIP offers the benefits of insurance as well as investment. Term Insurance, as the name suggests, is solely an insurance plan.
Ideal For It is ideal for those people who are planning to build their wealth through long-term investments. It is ideal for the financial functioning of the family in the absence of the sole earner.
Investment A part of the premium amount is invested in funds of your choice. It can be either equity-oriented funds, debt funds, or a combination of the two. No investments made here.
Insurance The remaining portion of the premium amount goes towards life insurance coverage Purely an insurance product.
Returns Here, returns are dependent on the market performance of the funds. No returns.
Ideal Time To Invest You can start investing in ULIPs at an early age. Since ULIP is a long-term investment, it allows your money to grow. This thus benefits you in the end. Term insurance is taken to financially protect your loved ones in your absence.
Applicable Charges Charges such as fund management charges, administration charges, fund allocation charges, and more are applicable. No charges are applicable.
Ideal Time To Purchase You can buy ULIPs at any time based on the financial objectives you plan to accomplish. Anytime between the age of 25 years and 35 years.
Lock-In Period Five years No lock-in period, but you have to renew the plan every year.
Tax Benefits You can avail tax deductions under Section 80C for the amount paid as premiums.

Also, the maturity amount is tax-free under Section 10(10D).

You can avail tax deductions under Section 80C for the premiums paid.

Also, the claim benefits paid to the nominee are tax-free under Section 10(10D).

Conclusion

Both term life insurance and unit-linked insurance plans are meant to serve two different purposes, with the latter being an investment-cum-insurance plan, while the former is a pure protection plan.

Typically, it would help if you went for investment plans that build a corpus for your future requirement, and ULIPs at Finserv MARKETS are one such product. However, the financial stability of your family remains paramount, which can be achieved with a prudent mix of term and unit-linked insurance plans.

To know more on ULIP investments in depth, you can check out these blogs:

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor-made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hour product deliveries, we work towards fulfilling all your personal and financial needs. What’s more, now enjoy the same benefits in just one click with our Finserv MARKETS App!

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522