ULIP vs Term Insurance

Having sufficient savings and investments, along with adequate insurance, makes up for a sound financial plan. With the plethora of insurance instruments available in the market, choosing the right one can be a daunting task.

Every insurance product has its pros and cons, but the purpose they serve is the same. The objective behind buying insurance is to provide financial security to our loved ones and us. Since financial security is extended to different causes in life, we have different types of insurance plans in the market.

Here, we will be discussing the difference between ULIP and Term Insurance, as it can be confusing for many people. Let us understand which is better, Term Plan or ULIP.

What is Term Insurance?

A term insurance plan is the most basic type of life insurance product available in the market. Ideally, the policy offers death benefits to the beneficiaries of the plan in case the policyholder dies. It acts as financial protection for your family, in your absence.

Features of Term Insurance

The following are some key term insurance features –

  • The policy offers death benefits to the beneficiaries upon your death.
  • To make the product flexible, some insurers offer maturity benefits as well. However, you need to have the return of premium cover to avail this benefit. With this cover, the insurer will repay the premiums paid towards the policy if you survive the term.
  • Term insurance is the most affordable life insurance product available in the market. You pay fixed premiums throughout the policy tenure.
  • The premiums paid towards the plan can be claimed for tax deductions under Section 80C of the Income Tax Act. Also, the death and maturity benefits received are tax-free.

What is ULIP?

The Unit Linked Insurance Plans (ULIPs) are primarily an insurance product. But the policy also allows you to make investments in funds of your choice. Hence, ULIPs are known to offer dual benefits – life insurance protection as well as investment. A part of the premiums paid are utilised for life insurance coverage, and the remaining portion is invested in market-linked funds.

Features of ULIPs

The following are the key features offered by ULIP investments –

  • The policy offers dual benefits - wherein you can enjoy life insurance coverage and wealth creation all under a single plan.
  •  You (the policyholder) have the liberty to choose whether you want to invest in debt funds, equity-oriented funds, or a combination of both. This decision depends on your risk appetite.
  •  ULIPs allow the flexibility of switching funds for a better market return. So, if you feel that your investments are not performing well in the stock market, you can switch (from debt to equity and vice versa) depending on your risk appetite and market performance.
  • ULIPs don’t have high charges associated with them. As per the Insurance Regulatory and Development Authority of India (IRDAI), it has annual charges between 2-2.25%.
  •  It is wise to invest in long-term ULIPs so as to yield reasonably high market returns.

Difference between ULIP and Term Plan

The following table will help you understand the difference between term plan and ULIP. ULIP or Term plan, which is better for you? Find out here:


Term Insurance Plan

Unit Linked Insurance Plan

Type of Policy

Term insurance is a pure life insurance product.

ULIP offers the benefits of insurance as well as investments.

Lock-In Period

No lock-in period.

Five-year lock-in period.


The term insurance premiums are quite cheap compared to most insurance plans in the market.

ULIPs have a number of charges associated with it. Hence, the premiums can be relatively high.

Financial Protection

In case you (the policyholder) die, the beneficiaries of the plan will receive the sum assured amount.

In case anything were to happen to you, the sum assured amount (chosen in the life insurance) will be paid to the beneficiaries. Moreover, the returns yield based on your investments will also be given to the beneficiaries.

Tax Benefits

The premiums paid towards term insurance can be claimed for tax deductions under Section 80C of the Income Tax Act, 1961. Also, the death benefits received by the beneficiaries are fully exempt from tax under Section 10(10D).

Similar to term insurance, the premiums paid for ULIPs can be claimed for tax deductions under Section 80C. Also, the payouts received are tax-free under Section 10D of the Income Tax Act, 1961.

Policy Tenure

Depends on the term you have chosen when buying the policy.

Have to wait for the five-year lock-in period to end to surrender the policy or make any partial withdrawals.

Returns (if any)

Death benefits in case you (the policyholder) die an untimely death.

If you have the return of premium cover, then your insurer will repay the premiums paid as a maturity benefit if you survive the policy tenure.

Depends on the market performance of the funds you have invested in.

The Conclusion

By now, we believe that you have a fair idea of the difference between Term Plan vs ULIP. With this, also ensure that you are taking your current financial situation, expenses, other investments, and future financial objectives into consideration. This will help you make an informed decision when buying either of these plans.

You can then browse Term Insurance Plans and ULIP investment options available on Bajaj Markets, and choose a plan that best suits your needs.

FAQs on ULIP vs Term Insurance

Which is better, ULIP or Term insurance?

Let’s understand the difference between ULIP and term insurance in a sentence:

While term insurance protects your family financially in case of death, the premium amount paid for ULIPs is divided into two–one is used for insurance, whereas the other part is invested in multiple funds.

Can you cash in on a term life insurance policy?

No, term life insurance has no cash value. It is beneficial only after the death of the policyholder.

Is ULIP tax free?

Yes, you can seek income tax exemption of up to Rs. 1.5 Lakh on ULIP premiums.

What are the benefits of ULIPs?

Here’s how ULIP is beneficial to you:

  • Provides insurance and investment

  • Offers multiple fund options based on your financial goals and risk appetite

  • Offers tax benefits of up to Rs. 1.5 Lakh

Are returns earned via life insurance tax-free?

Yes, returns earned via life insurance are tax free provided you meet the conditions mentioned under Section 10(10D) of the Income Tax Act.

Happy Customers of Bajaj Markets

Loan Offer
Download App