Key features and major differences between ULIP Vs Term Life Insurance


7 min read

Updated on Apr 30, 2023

Understand the key features and prime differences between ULIP and Term Life Insurance plans before choosing to invest in any one of them.

Investment is widely acceptable as a key requirement for comfortable living, not just in the present but also in the future. This is because alternate sources of income are slowly becoming a necessity in the current financial situation globally, clouded by inflation and recession. When it comes to investing for the future, the decision can sometimes be tough, understandably, with so many options available in the market today. Here we discuss in detail at least two of the major and the most popular ones – Term Life Insurance and ULIP – to help you make an informed decision.

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What is Term Life Insurance?

As the name suggests, a Term Life Insurance plan is a life insurance product aimed at securing the future of your family in the unfortunate event of your demise. Every single person has that inevitable fear in their mind of what would happen to their loved ones; who would take care of all their financial needs when they’re not there in this world?

A term life insurance policy understands that fear/concern very well and is designed to cover all your financial goals for your loved ones in the future. Besides offering financial protection and assistance to your family in your absence, Term Life Insurance also includes some add-on rider benefits to help provide more comfort and ease in your current life (check with your respective insurer).

What is ULIP Plan?

Another popular financial product among investors is ULIP, the short and commonly accepted acronym for Unit Linked Insurance Plan. The key highlight of this plan is that it offers the dual benefit of insurance and investment to the policyholder – combined under one single policy!

In other words, a ULIP policy is one under which the buyer/policyholder is entitled the benefit of additional wealth generation as well along with enjoying all the benefits of a basic insurance plan. This is what makes ULIP insurance plans highly popular among investors.

The section below details the key features of ULIP along with the salient features of Term Life Insurance to help you choose the right one for your insurance and investment needs.

Features of Term Life Insurance Plan

A Term Life Insurance policy has the following key features to look out for before choosing to buy one for your future:

  • Lump sum amount to beneficiary: This is one of the key highlights of a Term Life Insurance plan. The beneficiaries or nominees (recipients of insurance benefit in the policyholder’s absence) mentioned in the plan are entitled to receive the entire benefit as a lump sum amount, or even in installments, if they so desire. This is to help the nominees in times of financial distress in the unfortunate event of the death of the policyholder (provided he/she was also the primary bread earner for the family).
  • Affordable premium: Term Life Insurance plans come with easily affordable premium rates, even with the option of paying them in regular installments throughout the year, as per the policyholder’s comfort. The latter is offered the choice of paying premium installments monthly, quarterly, or annually.
  • Secure retirement: There are some Term Life Insurance plans available with tenure options that help the policyholder secure their financial future during the retirement phase.
  • Maturity benefits: Some term life insurance policies come with the maturity benefit options for the policyholder, under which he/she is entitled to receive benefits in case of maturity of policy tenure. The maturity benefit is only available to the policyholder though if he/she survives through the entire term of the policy.
  • Add-on riders available: Term Life Insurance also provides additional rider benefits to the insured which help extend the coverage of the policy. A few examples include accident benefit rider, illness rider, disability benefit rider, and the like.

After discussing the features of Term Life Insurance policy, let us know see below the salient features of ULIP plans.

ULIP Plan Features

Here are some of the top features of ULIP to consider before buying one for your investment and insurance needs:

  • Partial withdrawal option: The most important component of any financial product is its ability to assist the investor in times of financial distress. This is exactly what ULIP plans excel at. They allow the policyholder to withdraw a partial benefit amount from the policy to cover any unforeseeable financial expenditure that may arise in the future due to any event unprepared for in advance.
  • Investment plans: This is another highlight of ULIP plans that they offer investment options along with insurance benefits to the policyholder. ULIP investment plans are based on market risks though.
  • Switch-over facility: Since ULIP is an investment plan, it takes into account the probability that sometimes market returns may not be exactly desirable. Hence, the plan offers its investors the choice to switch over their funds from ULIP to another option in the desire to seek a better/higher investment return from the market when ULIPs fail to secure the same returns.
  • Corpus building: A ULIP is one of the best financial products that offers its investors the option to start building a financial corpus for their future, keeping in view that there always will be the need for one in times of rising costs and family needs ahead. In fact, future wealth generation is the prime feature of all ULIP plans.

ULIP vs Term Life Insurance: Key Differences

We looked at the major features of both Term Life Insurance and ULIP plans in the sections above in great detail. Understandably, this information can sometimes get a bit overwhelming for the investor, leaving them unsure on how to proceed further since both may look equally appealing at times. This is why we list out here the key differences between the two plans to help you make an educated choice based on your needs:

Parameters Term Life Insurance ULIPs
Maturity No maturity benefits offered to policyholder, except in case of return of premium plans Redemption option provided; units can be redeemed by the investor at the current prevailing price per unit
Type of Financial Product A pure life insurance product; no wealth creation feature Dual plan covering insurance and investment both
Investment Feature N/A Several investment choices offered to the policyholder – bonds, mutual funds, equities, debts
Sum Insured Provided to the beneficiary under the plan only at the time of death of the policyholder In case of unforeseeable circumstances, either the sum insured or the market-linked return is offered to the nominee, depending on whichever is higher
Switch-over Facility N/A Investor can switch between funds linked in the ULIP plan in case the original plan fails to deliver desirable market returns; risk returns can also be changed in the ULIP policy
Lock-in Duration No lock-in period; entire death benefit received upon demise of policyholder ULIPs generally have a 5-year lock-in period
Plan Charges Policyholder charged only for the death financial cover provided under the plan More charges applicable such as fund-management fee, allocation charge, fund-switching fee, policy administration charges, and the like
Affordability Since the plan only covers death benefit, it is relatively more affordable for the policyholder ULIP plans offer maturity benefit too along with death benefit so more charges and higher premium which makes it difficult to afford for all
Policy Term Both short-term and long-term plans available; lifetime renewal options with retirement benefits also available Different tenure options available for different ULIP investment plans; higher returns generally expected on 10-15 year investment plans

Summing Up

Between Term Life Insurance and ULIPs, which one is a better option to buy or invest in is a tough question. This blog is an attempt to help you understand the key features and differences between both to help simplify your decision. Make sure to check the absolute return on your ULIP plans before investing. You can find some of the best ULIP plans on PayBima along with easily affordable Term Life Insurance policy options on the website for all your future financial needs.

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FAQs on Differences between ULIP Vs Term Life Insurance

What is a ULIP?

ULIP stands for Unit-Linked Insurance Plan. It is a type of life insurance policy that combines life insurance coverage with investment options.

What is a term life insurance policy?

A term life insurance policy provides life insurance coverage for a specific term or period of time. If the policyholder dies during the term of the policy, their beneficiaries receive a death benefit.

What are the differences between ULIP and term life insurance?

ULIP provides both life insurance coverage and investment options, while term life insurance only provides life insurance coverage. ULIP premiums are split between life insurance coverage and investments, while term life insurance premiums only cover life insurance coverage. ULIPs have higher fees and charges than term life insurance policies.

Which one is better, ULIP or term life insurance?

The choice between ULIP and term life insurance depends on individual needs and goals. If the policyholder wants life insurance coverage and investment options, ULIP may be a better choice. If the policyholder only needs life insurance coverage, term life insurance may be a more cost-effective option.

Can I switch from ULIP to term life insurance or vice versa?

Yes, policyholders can switch from ULIP to term life insurance or vice versa. However, it may involve charges and fees, and policyholders should carefully consider their options and consult with their insurance provider before making any changes.

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Oct 18, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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