Term Insurance Plan Vs. ULIP Plan – All You Need to Know


While setting up a plan to protect your finances via the many products available on the market, the two that tend to confuse the most people are term insurance products and unit-linked investment plans (ULIPs). It is essential to know that these products have different objectives, and you must purchase them only after careful consideration.

In this blog, we’ll explain both types of insurance products, compare them, and eventually help you make an informed decision in choosing to go with one or the other.

Term Insurance

A term insurance plan is the simplest life insurance product, has no bells and whistles, and is relatively easy to comprehend. Term insurance requires you to pay annual premiums to the insurer for a set duration of the insurance called the policy term or tenure. In exchange, the insurer is obligated to pay a fixed assured sum to your family (or whoever you nominate) in case you, the policyholder, pass away under unfortunate and unexpected circumstances within the policy term. Thus, a term plan is a life cover that helps your family achieve financial stability if you pass away as a financial contributor.

Critical features of Term Insurance

– The guaranteed benefit is paid to the nominee in case of death of the policyholder during the policy tenure. 

– If the policyholder survives the policy term, there is no payout.

– Eligible under Section 80C for tax deductions.

– Cheapest life insurance product on the market.

Investment Plans

An investment plan or a unit-linked investment plan (ULIP) is a combination of life insurance and investment. A ULIP has an investment component along with a life insurance cover. One part of the premium goes towards the insurance benefit, whereas the remaining part is invested in funds linked to the market like equity funds or debt funds.

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Thus, in the case of ULIPS, there is an assured sum in case of the policyholder’s death. But on top of that, there is also a maturity benefit due to the investment component. It is aimed at those investors who do not want separate life insurance and investment tools but need a combined premium for both.

Key Features of Investment Plans

– Death benefit is paid to the nominee in case of death of the policyholder.

– If the policyholder survives the policy tenure, the sum assured, or the fund value, whichever is greater, is paid to the policyholder as maturity benefit.

– Eligible for Section 80C tax deduction claims.

– Policyholders can choose the investment portfolio from a range of equity, debt, or hybrid funds and switch them according to their needs. 

– Due to the charges related to these plans, premiums may be more expensive.

– The fund value is dependent on market fluctuations, so caution is required when investing via such plans.

Term Insurance or Investment Plan: Which is better?

As we said earlier, term and investment plans have different objectives. A vanilla term plan is best for those looking for a pure and simple life insurance policy without any complexities. Investors who do not want to mix their investments with their life insurance are best suited for a separate term plan. On the other hand, those who wish to invest their money and get the benefit of life cover in the same plan may opt for an investment plan.

There is no clear answer to this question. Based on what you read on this blog about both these plans, you must give due consideration and decide accordingly. 

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Visit here to know more about Term Insurance Plan: https://www.kotaklife.com/online-plans/online-term-insurance-plans


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