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Term Insurance vs ULIPs – Key Differences

Most of us would agree that a life insurance is a necessity. Your family is too precious to be left without proper financial support at a time when you are no longer there.

But one inhibition many have, especially regarding a term life insurance, is the fact that you won’t get your money back at the end of maturity. Life insurance premiums tend to be lower enough to mitigate that but for people who need more, a unit-linked insurance plan or ULIP could be an option.

Let’s understand what a term insurance and a ULIP are first.

What is a term life insurance?

A term life insurance is a life insurance policy where someone can insure a fixed amount of money for a fixed period of time. The beneficiary will get an insured sum in case if something unfortunate happens to the insured, during the period of insurance.

What is a ULIP?

A unit-linked insurance plan or ULIP is primarily an investment tool and life insurance is an added advantage.

The money you put in ULIP is invested in different securities, including stocks, debts etc by a fund manager, just like in a mutual fund.

The key difference is the life insurance factor. A part of the money you invest is kept apart for life insurance and just like in any life insurance policy, your beneficiary can claim the insured sum if you have to leave your family behind, unfortunately.

Difference between a term life insurance and a ULIP

A term life insurance is purely a life insurance policy, and a ULIP is primarily an investment tool with the added advantage of life insurance. Let’s see how else they differ –

  • Investment option – Like mentioned above, term life insurance doesn’t have an investment option. It acts like a traditional insurance where the beneficiary will get the insured sum if the insured passes away during the term of the insurance.
  • Sum-insured – Traditional term life insurances tend to offer a higher insured sum for a set premium amount because a term plan is purely an insurance only option.
  • Charges – ULIS tend to attract more charges than a term life insurance due to the investment opportunity involved in it. Usually, a term life insurance has only one charge- the premium amount. At the same time, ULIPs tend to have three main charges –
  • Premium allocation charges.
  • Fund management charges.
  • Policy administrative charges.
  • Flexibility – There is not much flexibility when it comes to a term insurance plan as there is no investment here. Your insurance policy will stay the same till the end of the term. In ULIS too, the insurance part doesn’t come with a lot of flexibility, but you have the option to switch between different investment options.
  • Affordability – Term life insurance premiums are substantially lower since there is no investment involved.

Choosing between a term plan and a ULIP

Choosing between them is purely based on your personal preferences. If you are looking for an investment opportunity that will help you protect your family as well, ULIP could be the choice that works for you.

At the same time, if you are looking for an affordable life insurance that can protect your family in case if you have to leave them behind, a term insurance policy could be the wiser choice.

How to buy a term plan online?

You can easily buy term insurance online through an insurance provider or broker website. These websites will have resources such as a term insurance calculator, that will help you customise your plan.

There will also be resources on these websites, that will help you understand term insurance better.

How to buy ULIP online?

You can buy a ULIP online through broker websites as well. Since it is mainly an investment option, it’s advisable to research ULIP’s investment opportunities as well.

Similar to a term insurance calculator, broker websites will provide you with resources that will help you in choosing the plan that will work for you.

Doesn’t matter whether it’s a ULIP or a term plan, life insurance is important and if you don’t have one yet, it’s best to get one as soon as you can!

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