- A term life insurance plan provides pure protection (just life insurance cover) to your dependents
- A Unit Linked Life Insurance Plan is a combination of life insurance cover and investments
- A ULIP offers market-linked returns along with life insurance cover, depending on the fund/s chosen
When it comes to buying life insurance, it might seem difficult to select the right plan basis your needs.
Two of the popular choices include term insurance plans and Unit Linked Life Insurance Plans (ULIPs).
While term insurance plans are pure protection plans that can provide a substantial lump sum benefit in case of policyholder’s demise, ULIPs are life insurance-cum-investment plans where a part of the premium is allocated to provide life insurance cover and the other part is invested.
While deciding whether to choose between a term plan or a ULIP, it is important to understand the two products, their features, and benefits.
Features of Term Life Insurance Plans
- A term life insurance plan is a simple plan that secures the future of your family in case you are no longer there.
- It offers a substantial cover at a lower premium. You can decide the Sum Assured, which is the amount which your family would receive in case you are not there. Since this is a pure death benefit plan with no savings component, there are no returns (maturity benefits) if you survive the policy term.
Features of Unit Linked Insurance Plans
- A ULIP is a life insurance-cum-investment plan where a part of premium is allocated towards life insurance cover, while the rest is invested in markets.
- ULIPs offer several benefits like providing various fund options to invest in based on your investment style and risk appetite,, fund switching options, option to top-up, maturity benefit, and even partial withdrawals.
- ULIPs can generate high to moderate returns, depending on the performance of the underlying assets.
- Investment strategies in ULIPs can be modified as per the investor’s changing risk appetite. One can choose between different fund types which are having varying degrees of risk - from very high to low.
- ULIPs come with a minimum lock-in period of 5 years. After which, you can redeem units at their prevailing prices.
- Staying invested for a longer term allows your portfolio to gain from compounding.
- Since ULIPs require expert fund management, there are certain charges towards policy management, fund management and administration.
- What takes the Upper Hand?
The features of term life insurance plans and ULIPs make it clear that the two are very different products and serve different purposes. While a ULIP gives you a life insurance cover and the flexibility to invest as per your risk appetite, investment strategy, and financial goals, a term plan cushions your dependents with financial security, with a substantial life insurance cover.
- Which One is Right for You?
Given that term life insurance plan and Unit Linked Life Insurance Plan are different in their essence and benefits, they cannot be ideally compared as they both serve different purposes. However, you should first consider availing a term life insurance plan as it is simple and cost-effective and provides comprehensive financial protection to your family in case of the untimely demise of the policyholder.
When you are no longer around, a term plan financially secures your family and dependents with its sizeable cover, helps maintain their standard of living, repay any debts, and provide for life’s important milestones. The sum assured offered by a term plan is comparatively higher with affordable premiums.
A ULIP serves you if you wish to invest your money to build a corpus for the future. The life insurance cover provided by it also helps you protect your family against unforeseen setbacks and to secure your future goals.
A ULIP also spells convenience for those who do not have the time or resources to manage their investments. Good returns can be availed when you invest for a period of 10 to 15 years.
Assessing your needs carefully, therefore, helps you to zero in on the right term life insurance plan
or a unit linked life insurance plan