Life insurance is designed primarily to secure your and your family’s financial future. There are various types of life insurance policies on offer to cater to your life insurance needs.
Today we will understand the difference between the two most common and widely preferred life insurance products – ULIP and term insurance.
What is ULIP?
ULIPs are a unique investment tool that offers you the best of both worlds – the opportunity to grow your money and the financial security for your family in case of an unfortunate event. It is a perfect investment plan for you to fulfill your long term goals like buying a property, meeting the expenses for your child’s higher education and marriage, retirement and more.
What is Term insurance?
Term insurance offers pure life protection. It provides guaranteed payout to the nominee in case an unfortunate event during the term of the policy. The life cover of a term insurance acts as a substitute to the income of the primary breadwinner of the family in unforeseen situations.
Key differences between ULIP & term insurance
|Nature||Dual benefit of life cover and opportunity to grow your wealth||Purest form of life insurance that offers financial protection in form of large cover|
|Suitability||Suitable as long-term savings to finance life goals||Ideal for the purpose of securing the financial future of loved ones against uncertainties|
|Affordability||Larger the premium you pay, higher the maturity amount you get. This category of plans have slightly higher premiums as these offer growth of your investments and provide a life cover too||Term insurance plans usually offer high cover amount at really affordable premiums|
|Lock-in period||You cannot receive payouts if you surrender the policy within the first five years after the starting date.||No lock-in period|
|Tenure||The longer you stay invested the more are your returns||Should last throughout the time your family depends on you financially|
|Tax savings||Offer tax-saving benefits for the premiums paid under section 80C. The payout in these plans are also tax-exempted under section 10(10D)||You can save tax on the premiums paid under section 80C and 80D. Along with it the sum assured or the payout is tax free under section 10(10D)|
A sound financial plan requires both - savings for growth of money and life cover to secure the future in case of an eventuality.
So as you can see from the points mentioned above, there are some core differences between term insurance and ULIPs. Both have some very good benefits, but the needs they fulfill are different. So you need to assess your life insurance requirements and see which kind of life insurance is best suitable for you.