May 21, 2024

Term Insurance or ULIP-Which gives better returns?

Every insurance policy has both perks and downsides. This makes it difficult for most of us to decide what to do, and which policy to choose especially when financial gurus advocate for a variety of solutions and investing philosophies based on their own understanding. Even a simple and straightforward product like term insurance is being compared to more complex products like ULIPs, adding to the confusion of new investors/policyholders.

Term insurance plans are often designed to give financial stability to a policyholder’s dependents and kin in the tragic event of the policyholder’s death. Some subscribers, however, are opposed to the concept of a traditional term insurance plan because there is no provision for the return of their money. As a result, some policyholders choose ULIPs (Unit-linked insurance plans) because they can also be used as investments. 

If you, like many others, have been wondering whether to invest in a ULIP or a term insurance plan, here’s all you need to know about the two to make an informed decision.


Differences Between Term Insurance Plans and ULIP.

Let’s look at the fundamental distinctions between the two types of insurance.

  • Scope and Nature: What distinguishes ULIPs from term insurance plan is that they combine insurance and investment in a single product. ULIPS are market-linked and are expected to provide higher returns depending on market conditions. Here’s how they work: a portion of your premium goes towards your life insurance, while the remainder is invested in the market in funds of your choice, based on your risk profile and risk appetite. Policyholders can invest in either equity or debt funds, or a combination of both. With the help of a lump sum sip calculator given on most of the websites, you will be able to calculate the returns. Term plans, on the other hand, work traditionally and do not have a savings component. Term insurance covers the insured’s entire life by paying the full premium. They only provide death benefits to the insured family. It helps to replace your income in the family in the event of your unexpected death. You can add riders to the base policy to expand the coverage to include accidental death benefits, critical sickness benefits, and so on.


  • Suitability: If you want to invest for the long term, ULIPs are a good option. The benefit of life insurance is added to the coverage and the investment component is what makes them more appealing. Like other funds, you can use a lump sum SIP calculator to know the returns you may get. Term insurance plans are there to provide regular income to the family or dependents of the deceased breadwinner. 


  • Cost-effective: Compared to ULIPs, term insurance plans are more affordable. Term insurance plans provide a bigger sum assured at a lower premium rate, depending on a number of factors that influence your premium, like your age, health status, and so on. However, the decision to purchase a term or ULIP plan is entirely dependent on an individual’s life or financial goals.

  • The value of surrender: If you don’t pay your premiums, your term insurance coverage will expire. If a ULIP terminates within the lock-in period, the fund value up to that time is paid out after any applicable charges are subtracted, in accordance with the policy’s terms and conditions. If the ULIP is surrendered after the lock-in period has expired, the insurance provider must pay out the fund value, with no surrender charges. 

When does it make sense to opt for the ULIP plan?

If you are willing to take some risk in order to reap higher long-term returns, ULIPs are the way to go. You can choose between plans that provide regular income benefits to your dependents and plans that refund all premiums paid for the insurance if you survive the duration of the coverage. ULIPs have the overriding characteristics of an investment instrument. Thus, if you want to participate in the market but lack the necessary expertise, ULIPs are an excellent way to get started by delegating the actual work to fund managers. You get to choose your investment and risk profile; alternatives include equities funds, fixed-income security funds, or a hybrid/balanced fund. You can make use of a lump sum SIP calculator to further know the returns on the given funds.

Furthermore, most Unit Linked Insurance Plans allow you to monitor your portfolio. There is also the possibility to swap between these funds if your risk tolerance changes due to your financial needs and changing life circumstances.

Does it make sense to get a ULIP in conjunction with a term plan?

If you currently have term insurance, you may be hesitant to purchase a ULIP as supplementary protection. However, depending on your goals and financial needs, purchasing a Unit Linked Insurance Plan in conjunction with a term plan may benefit you and make it easier to reach your objectives. Consider some of the key benefits of having the best ULIP plan in addition to term insurance.

Investment opportunities: The best ULIP plans provide a unique combination of insurance and investment. Unlike pure-term insurance plans, a portion of the premium you pay for a ULIP is invested in various ULIP funds of your choice. This creates possible prospects for capital appreciation and allows you to access returns from debt instruments, equity, or both, depending on your risk tolerance.

Maturity Benefits: Term insurance plan offer extensive life coverage in the form of death payouts. ULIPs improve this coverage by providing maturity benefits as well. If you survive the policy term, you will be able to reap the benefits of the investment portfolio you have built up over time. So, by acquiring a ULIP in addition to a term plan, you benefit from both death and maturity benefits.

Maximising Tax Benefits: The premiums you pay for term insurance plans and ULIPs are both tax deductible under Section 80C of the Income Tax Act. This deduction is restricted to Rs. 1.5 lakh. With the best ULIP and term plans in your portfolio, you may simply maximize your tax benefits and lower your overall tax liability.

So we are saying, 

The information provided above should have given you a good overview of ULIPs and term insurance. Both products have distinct advantages that make them profitable. After reviewing these insurance plans, the option to choose one is based on the individual’s tastes and budgetary requirements. It is evident that neither plan is superior to the other. The best option for you is determined by your needs and ambitions. Term insurance policies are the most risk-free way to ensure your loved ones’ futures in the event of your untimely death. They are especially useful if you wish to do so at a low cost and with a significant sum protected. ULIPs, on the other hand, offer cash benefits in addition to life insurance. Unlike term insurance, returns on investment allow you to benefit from maturity while still accomplishing long-term goals. If you wish to invest in debt or equities, a ULIP is a superior alternative because it lets you to save money while simultaneously safeguarding your family from unexpected life events. If you want to safeguard your loved ones, you could get a term insurance plan.

Both policies have distinct functions. As a result, you shouldn’t choose between the two. Including both in your investing portfolio will not only preserve your family’s financial security but will also help you build a fund for retirement and other future needs. As a result, it is a good idea to supplement your term plan with a ULIP, or vice versa.

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