Two of the most known types of life insurance, albeit for different reasons, are term life insurance and unit-linked insurance plan. One of them is popular for its simple design and low cost, whereas the other is known to offer maturity benefits in the form of market-linked returns. But how does one choose between the two?
Getting the right cover means having the right protection for your loved ones after you are gone. It is no wonder that customers prefer to put a lot of thought and research into choosing the right life insurance, especially when there are so many types available today. Know that there is no life insurance type that must suit everyone, so every purchase decision is best made based on your unique needs.
If you are in the market for a life cover but don’t know which one to choose, let’s narrow down your options by elaborating on the differences between unit-linked insurance plan, or ULIP, and term life insurance policy.
What is ULIP?
Considered to be the more complex of the two, ULIP is also known to offer a wider range of benefits. These plans offer maturity returns in the form of market-linked earnings alongside a life cover. Hence, the two fundamental ULIP benefits are:
- A death benefit that can be claimed by the policy nominee
- A maturity benefit that the policyholder can claim if they survive the policy duration
Besides this, you can also claim tax benefits on your ULIP. You can also choose the type of funds your money will be put into, thus allowing for transparency.**
What is Term Insurance?
A level term insurance plan is the simplest version of life insurance. These plans do not offer maturity benefits. But the highlight of these plans is their cost-effectiveness. Some sub-types of term insurance may offer a maturity benefit in the form of return of premium. However, these plans are suitable for you if you are looking for a no-frills life cover.
Which Plan Should You Choose?
If you are trying to choose between one of these plans, it is advisable to understand your options and what they offer. Let’s compare ULIP vs term insurance.
ULIP
| Term Life Insurance
|
Investment plus life insurance
| Purely life insurance
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Premium amount directed towards life cover as well as investment
| Premium used solely for life insurance
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Death benefit as well as maturity returns
| Only death benefit (unless a modified plan is chosen)
|
Market-linked, potential for high returns but with risk
| No returns as it’s pure risk cover
|
Fund value based on market performance at maturity
| No fund value aspect
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Five-year lock-in period
| No lock-in; duration selected at purchase
|
Considered a long-term plan
| Term duration can be short
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Partial withdrawals allowed after lock-in period
| No liquidity, cannot withdraw money
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Additional charges added to premium (premium allocation charges, fund management charges, etc.)
| Lower premiums when compared to ULIPs
|
Suitable for those seeking investment and insurance combined
| Suitable for those seeking only life insurance
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Subject to market risk, returns are not guaranteed
| No market risk, sum assured can be claimed under the right circumstances
|
Regular updates on fund performance and value
| Simple and straightforward, no fund performance
|
To put it clearly, some of the differences between these two types of life insurance are glaringly obvious. When comparing ULIP vs term insurance, even a quick glance at the key features of the plans, such as price and benefits, is enough to tell you how these plans differ from one another.
Which One Should You Buy?
Based on this detailed comparison, you may choose a plan that is right for you. On the other hand, you may have additional requirements for coverage, leading you to opt for a new life cover. For example, you may already have a ULIP but have recently undertaken a new liability, such as a car loan, for which your ULIP coverage may not suffice. You could then add a small duration term insurance policy to the mix, so you may rest assured that your family has a reasonable sum assured in case something were to happen to you.
Term insurance is rather suitable for people who are keen on plain life insurance at a low cost. You can keep the plan as simple as possible to keep the costs low or add some riders and benefits such as return of premium to enhance the scope of your policy. However, term insurance is not the plan to choose if you are looking for significant maturity returns from your policy.
ULIP, on the other hand, is a choice for people who are keen on investment benefits from their life insurance policy. If you do not mind paying a higher premium for significant maturity return possibilities, these plans may be right for you.
Whichever plan you choose, ensure that it is selected based on your personal requirements rather than what is popular. Using a premium calculator may help you get estimates for them.
** Tax exemptions are as per applicable tax laws from time to time.
Disclaimers:
Unit Linked Insurance Products are different from the traditional insurance products and are subject to risk factors. The Premium paid in unit-linked life insurance policies are subject to investment risks associated with capital markets and NAVs of the units may go up or down, based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. IndiaFirst Life Insurance Company Limited is only name of the Insurance Company and _________________ (UIN__________) is only the name of the Unit Linked Life Insurance contract and does not in any way indicate the quality of the contract, its future prospects, or returns. Please know the associated risks and the applicable charges from your Insurance Agent or the Intermediary or policy document issued by the Insurance Company. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. For more details on risk factors and terms and conditions, please read the sales brochure carefully before concluding the sale.
IndiaFirst Life Insurance Company Limited, IRDAI Regn No.143, CIN: U66010MH2008PLC183679, Address: 12th & 13th floor, North [C] Wing, Tower 4, Nesco IT Park, Nesco Center, Western Express Highway, Goregaon (East), Mumbai – 400 063. Toll free No – 1800 209 8700. Email Id:customer.first@indiafirstlife.com, Website :www.indiafirstlife.com, Fax No. +91226570600. Trade logo displayed above belongs to our promoter M/s Bank of Baroda and is used by IndiaFirst Life Insurance Co. Ltd. under license. Adv. Ref. No.:_________.
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