Difference Between a Term Insurance Plan and ULIP


5 min read

Updated on Jul 13, 2022

What is the Difference Between a Term Insurance and  ULIP?

There are plenty of areas of difference between a Term Insurance and ULIPs.

Thanks to inflation it has now become more necessary than ever to plan your finances so that you can manage your expenses. The good thing is that the financial markets these days have plenty of options that help you do so to a significant extent.

At the same time, it is also important that you know more about these vehicles before you invest your hard-earned money in them. As far as protecting your family from the financial implications of your death is concerned, term insurance is the best option for sure.

Apart from offering you death benefit it also has riders that help you lead a life free of trouble. However, the ULIPs (unit-linked insurance plans) offer you the dual benefit of death benefit and wealth creation along with maturity benefit.

So, it offers you the chance to earn more money in life in different ways. However, these plans carry various risks as well that you should understand in detail before you invest in them.

Also Read : Which is Better Endowment Or ULIPs-Features and Benefits 

9 Major Differences Between a Term and  ULIP Plan

1. The difference in terms of the type of policy

The first difference between them is in the type of policy that they are. A term life policy can be described as life insurance at its purest. It comes with riders that ensure that you, the policyholder, are fully protected in the event of an emergency. This would not provide you with the same wealth-building benefits as ULIPs. Then this would, however, provide a substantial sum to those whom you have named to benefit from the policy. This would be done usually when you pass away within the policy coverage period.

As we have said above, you would get this benefit along with the chance to create wealth by investing in ULIPs. You already know ULIP’s full form. Now, this is something that you should know too.

2. The difference in terms of the lock-in period of Term Insurance and ULIPs 

Even if you choose the best ULIP plans this is something that you must know. The thing with term policies is that it does not have any lock-in period. The nominees of such a policy would get the benefits that they are guaranteed by the policy when the policyholder passes away within the coverage period. On the other hand, you have a lock-in period in the ULIPs. As such, you should know about this before you invest in the same. You can get the information from any source that you want.

3. Term Insurance and ULIPs: Difference in terms of affordability 

This is a major point of difference when it comes to ULIP vs. term insurance. You need to spend less money to buy a term life plan and this is because it only offers life coverage. However, the ULIPs have a higher premium rate because they offer you maturity benefits as well. This is why they have various other charges related to these plans.

4. The difference in terms of financial protection 

If you think of ULIP vs. life insurance this is something that you must know as well. In a term plan, your nominees would get the sum assured if you die while you are covered by the policy. Now, this could be because of natural reasons or because of an accident as well. During these situations, a ULIP would offer you the higher amount between the market-linked returns or the sum assured

5. Difference in terms of maturity benefit of Term Insurance and ULIPs

As we have said already, a ULIP offers you maturity benefit, which is something that you do not get from a term life insurance policy. The only way in which you can get such a benefit is when you go for the option of return of premium. In the case of the ULIPs, you can redeem the units at the prevailing prices at that point in time.

6. Term Insurance and ULIPs : The difference in terms of switching options 

A term life insurance policy does not have any option of switching, which is something that you get from a ULIP. In the ULIPs you would be allowed to change the funds that your plan is linked with. Apart from that, you can also opt to alter the risk returns in such a policy.

7. Term Insurance and ULIPs difference in terms of tenure 

In the case of both ULIP and term insurance plans, you get short and long-term options from the insurers these days. You can always select them based on what you prefer or need in these cases. In fact, in some of these policies, you also have the freedom to renew them as long as you are alive. This makes sure that you can enjoy the benefits for that long a period. Thus, you can easily choose a policy that lasts till your retirement so that you can have financial security when you reach that stage of your life.

In the case of the ULIPs, the tenure depends on the investment plans that you have gone for in these cases. So, if you invest for a longer period such as 10 or 15 years you can be sure that you would get good returns on the same.

8. The difference in terms of charges : Term Insurance and ULIPs

When you invest in a term life insurance policy you only need to pay for the death benefit that your nominees would get if you died within the policy coverage period. However, in the case of a ULIP, there are various other charges that you have to deal with. It is these changes that lead to comparatively higher expenses in these plans. Some of the most prominent examples of such fees would be the likes of allocation charges, policy administration charges, fund management fees, and fund switching fees, to name a few.

9. Term Insurance and ULIPs : The difference in terms of investment options 

As you would have understood by now, this is the most fundamental area of difference between a ULIPs and a term life insurance policy. There is no investment component at all in a term plan. On the other hand, the ULIPs offer you a wealth of investment options such as mutual funds, bonds, debts, and equities, to name a few.

May 10, 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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