Today, we have a number of different insurance products available in the market. It is very important for us to understand the difference of one with the other to make the correct insurance product buying decision.
ULIP is a life insurance product, which provides risk cover for the policy holder along with the option to investin investments such as stocks, bonds or mutual funds.This investment risk in investment portfolio is borne by the policy holder.ULIPs are popular because they are combination of insurance and investment in a single integrated product. ULIPS are market-linked and may deliver higher returns based on the market conditions.
Term life insurance plan provides coverage for a certain fixed time period as chosen during the inception of the policy. It is the purest form of life insurance because it’s designed only to provide financial protection toyour loved ones in case you die prematurely. If you have a term insurance policy and die within the term, your beneficiaries receive the agreed sum assured pay-out. After the pay-out, the policy has done its job and it will end.Normal term period chosen is 10, 20 or 30 years. With most plans, the death benefit pay-out and premium stay the same during the entire term of the policy.
So now that we know what Term insurance VS ULIP are, let’s do a comparison between them:
|Comparison||ULIP||Term insurance plan|
|Type of product||ULIP is a life insurance product that provides protection as well as an option for investing in various qualified investments.||Term insurance is a life insurance product that is offered by an insurance company which offers financial coverage to the term life insurance policy holder for a specific period of time. In case of death of the insured individual during the policy term, the death benefit is paid by the company to the nominee.|
|Returns||ULIPs can deliver higher returns based on market conditions.||Term plansdo not offerany returns|
|Withdrawal||In ULIP you get the option to withdraw from your fund after completion of the lock-in period. A lock-in period of 5 years is applicable.||In term plan you can get surrenderbenefit only on your single and limited pay policy to get premium refund post deduction of charges.|
|When to consider buying||When you want protection along withhigher returns.||When you want to protect your family financially in case of your sudden death.|
|Switching option||ULIP offers flexibility to change your investment fund as being offered by the policy.||Not applicable for a term insurance plan.|
|Maturity||Fund Value is paid on maturity.||Term insurance plan does not offer any maturity benefit. If the policy holder survives the term they don’t get anything on maturity of the plan as it is pure risk cover plan.|
|Tax Saving factor||Premium payment eligible for deduction under section 80 C.Maturity and Death Benefit is also tax free under section 10(10)D.||Premium payment eligible for deduction under section 80 C. Death Benefit paid to nominee is also tax free under section 10(10)D.|
It is quite clear that both ULIP and Term life insurance plan are meant for different purposes and we cannot do a mirror to mirror comparison of these insurance products. ULIP is an investment cum insurance plan, where as a term plan is a pure risk protection coverage against life.
Returns on ULIPs are based on the type of funds you choose, returns might be higher or lower depending on the then prevailing market conditions. It also provides decent insurance coverage. Its coverage is around 10 times the annual premium paid.
Term insurance offers you a heavy insurance coverage at a nominal premium that can meet all your protection requirements, in case of death. However, you do not get the amount invested back. Interestingly, both the above offer you tax savings to the insured against the premiums paid under Sec 80C of the Income Tax Act.