ULIP Vs Term Insurance. What Is Better?

When choosing an insurance plan that suits your requirements and budget, it can be challenging to narrow down one. With so many lucrative options available, it is easy to get confused between a couple of plans. So, let’s look at two insurance policies which are ULIP and term plan to understand which is more favorable for you.

What Is Unit Linked Insurance Plan?

ULIPs or Unit Linked Insurance Plan is a mix of an insurance plan and investment. ULIPs enable you to get a life cover along with investing in equity or debt to secure your future. Some part of the monthly or yearly premium goes in ensuring a life cover while the rest is invested into funds based on your risk appetite. In comparison with other policies, ULIPs give long-term benefits through investment.

What Is Term Insurance Plan?

A term plan is an insurance policy that provides you with a life cover in return for paying the premiums for a fixed period. In the event of death, your family would receive a lump sum payout to secure their finances. With a term insurance plan, you can purchase a policy with a high assured at an affordable premium which is not possible with other policies. Here is a comparison of ULIPs and traditional insurance plans:

ULIPs vs Term Insurance:

ULIPs Term Insurance
Type of plan Insurance scheme along with investment Pure insurance plan


Returns Low returns as they are market-linked and depend on the investment choice Only the death benefit can be availed in the event of death
Premium distribution Premium is divided to invest in insurance cover and investment funds Not applicable
Partial withdrawal ULIPs allow one to withdraw from the funds partially No funds can be withdrawn
Flexibility One can choose the type of investment as per the risk appetite Not applicable
Lock-in period Five years For the chosen tenure of the plan
Transparency for investment Policyholders are aware of the amount being invested in the various types of investment instruments Not applicable
Tax Benefit ●       The premium paid is eligible for deduction under Section 80C.

●       Also, the amount received on maturity of the policy is tax-free under Section 10(10D)

●       The premium paid is eligible for deduction under Section 80C.

●       Also, the death benefit is tax-free under Section 10(10D)

Benefits of Investing in ULIPs:

1.    Dual Advantage

ULIPs grants you the dual advantage of securing a life cover with investment perks. It allows you to garner good returns by investing in equity or debt.

2.    Flexibility

You have the flexibility of switching between investment funds during the insurance term based on the amount of risk you can handle. There are a certain number of switches allowed for free.

3.    Long-term Goals

If you have a long-term goal in mind like buying a house or marriage and are planning to save up for it, ULIPs present you with an investment plan option that comes with a life cover.