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Unit-Linked Life Insurance (ULIPs) vs. Term Insurance

  • 10th Oct 2019
  • 225
Unit-Linked Life Insurance (ULIPs) vs. Term Insurance

Financial experts always recommend the right combination of investments and insurance in your overall portfolio. Today, you have a wide choice of different insurance products offered by the insurers. In addition to the traditional policies, you have the option of choosing between term plans and unit-linked insurance plans (ULIPs).

Choosing between these two options is often confusing. Here are some basics that may help you make the right decision.

Term plans

Term insurance plans are pure life covers that pay the policy benefits to your beneficiaries in case of an untoward circumstance. The coverage is available for different durations and you need to pay a renewal premium. If you discontinue paying the premium, the coverage becomes unavailable.

There is no investment component in a term insurance policy. Additionally, most of the term policies do not have any maturity benefits. This means you do not receive any returns if you survive the policy duration. The death benefits are payable to your beneficiaries and are eligible for tax benefits. The premium paid on the term plan is also eligible for tax deductions.

There is no investment component in a term insurance policy. Additionally, most of the term policies do not have any maturity benefits. This means you do not receive any returns if you survive the policy duration. The death benefits are payable to your beneficiaries and are eligible for tax benefits. The premium paid on the term plan is also eligible for tax deductions.

Invest in Term Insurance Now to Save Tax

ULIPs

One of the beneficial features of ULIPs is that these products combine investments with insurance coverage. A certain component of the premium paid on the ULIP is used to cover mortality charges. The balance is invested in different financial instruments to provide returns.

The investment component may be parked in various instruments such as debt, equity, and bonds. You may choose how the money is invested in these financial instruments.

Based on the aforementioned, you may consider ULIPs to be a better product.

Insight to ULIP vs. term insurance that may be beneficial in making the right choice:

1. Affordability:

The bifurcations in term plans are lesser as the entire premium is used towards mortality charges and administrative costs. On the other hand, a portion of the premium on ULIPs is used towards these costs and the balance is invested, thereby having more bifurcations. Therefore, term plans are more affordable and offer higher coverage at lower premiums.

2. Flexibility:

Based on your risk profile and financial goals, you may invest in various financial instruments when you choose a ULIP. Moreover, you may switch between funds as per your requirements. Such flexibility is not available in a term plan.

3. Locked premium

When you purchase a term plan, the premium is fixed for the entire duration of the policy. Therefore, you can avail of a higher coverage for a lower premium when you purchase the policy at a young age. Additionally, youmay discontinue the coverage by choosing not to pay the renewal premium at anytime during the policy term. In comparison, ULIPs come with a lock-in period of five years and the money cannot be withdrawn during this time.

Having understood the features of term insurance and ULIPs and their differences, your decision must be based on your personal requirements. A term plan is an affordable option to secure your family’s financial stability in your absence. ULIPs are a good choice if you want to build a corpus to meet various financial goals during different stages in your life. Therefore, analyzing your needs carefully will help you make an informed decision between these two types of life insurance policies.

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