When it comes to purchasing life insurance, it may seem tough to choose the correct plan based on your requirements. Two highly popular choices involve term insurance and ULIPs (Unit Linked Life Insurance Plan).
Though a term insurance is a pure protection plan that can offer adequate lump sum benefits in the case of your demise, ULIP is a life insurance policy cum investment plan wherein a part of your premium is assigned to offer life cover and the rest is invested.
To make an informed decision between ULIP or term policy, ensure to understand the two instruments, and their features –
Term Insurance Plan Features –
- Term insurance is a simple policy plan that secures your family’s future in the case of your absence.
- It provides adequate cover at lower premiums.
- You can determine the sum assured i.e., the amount which your dependents would get in the case of your unexpected demise using the term insurance calculator. In the calculator, you just need to mention your income, your number of dependents, age etc. and based on your inputted details it will show you suitable plans.
- Based on your age, the premium is decided. This means that younger individuals have lower premiums due to their reduced health risk while older individuals have higher premiums owing to higher health risk.
- As this is a death benefit policy with zero savings component, there are zero returns or maturity benefits in case you survive the insurance term.
Features of ULIPs (Unit Linked Insurance Plans) –
- ULIP is a life insurance policy cum investment scheme where part of the premium goes towards securing your life while the remaining is invested in the market.
- ULIP provides various advantages like the provision of different fund options to invest in depending upon your risk appetite and investment style, the choice to switch funds, maturity benefits, top-up facility and partial withdrawals.
- ULIP can provide moderate to high returns, based on the underlying assets’ performance.
- ULIP investment strategies can easily be modified according to your risk appetite. You can select between distinct fund types, which may have differing degrees of risk – from high to low.
- ULIP comes with a lock-in of five years. After this period ends, you are allowed to liquidate units at their ongoing prices.
- Staying invested in ULIP for the longer term enables you to gain from the compounding effect.
A major point of difference – term insurance and ULIP?
From the features of ULIPs and term insurance, it must be thoroughly clear to you now how both of them are distinct products and serve distinct purposes. While ULIP provides life insurance cover and flexibility to invest according to your investment strategy, risk appetite, and crucial financial goals, a term plan policy cushions your family with financial stability by providing adequate insurance cover.
Which option should you select?
Given that ULIP and term insurance are distinct products in reference to benefits and features, they cannot be compared as they serve distinct purposes. However, you must initially consider buying a term plan because it is cost-effective in nature and offers comprehensive financial security to your dependents in the scenario of your unanticipated death.
In your absence, term insurance financially supports your dependents with substantial cover – assisting them in maintaining their day-to-day expenses, repaying debts, meeting their financial goals etc. Also, the sum assured by a term insurance plan in comparison to ULIP is higher and is available at affordable premiums.
On the other hand, ULIP is a suitable option if you want to invest your funds to form a corpus for any future goals as well as to secure your dependents against unforeseen crises through life insurance cover. However, note that the sum assured coverage in the case of ULIP is usually lower than term insurance.