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

Term insurance is a pure protection life insurance providing only a death cover. Whereas ULIP is an investment insurance plan providing death cover and investment options.

  • 10,956 Views | Updated on: Mar 14, 2024

Having a good amount of savings and investments, along with adequate insurance, is always a sound financial plan. Even financial experts recommend the right combination of investments and insurance in your overall portfolio. Today, you have a wide choice of insurance products offered by insurers. The main objective of buying an insurance plan is to provide financial security to yourself and your loved ones. In addition to the traditional policies, you can choose 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 and help you understand the difference between ULIP and term plan and which is better: ULIP or term insurance? Keep scrolling through to know the details:

Term Insurance

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. If you survive the policy duration, you do not receive any returns. 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 under Section 80C.

Features of Term Insurance

Below-mentioned are some of the features of term insurance:

Term Insurance offers death benefits to your family upon your death.

Various insurers offer maturity benefits as well to make the product flexible. However, to avail yourself of the maturity benefit, you need to have the return of premium cover.

It is one of the most affordable life insurance plans available on the market. You have to pay the fixed premiums throughout the policy tenure.

The premium paid towards the term insurance plan can be claimed for tax deductions. Also, the death and maturity benefits are tax-free.


ULIPs combine investments with insurance coverage. A certain component of the premium paid on the ULIP is used to cover mortality charges, while the remaining 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.

Features of ULIPs

Some of the key features of ULIPs include:

ULIP offers dual benefits, wherein the policyholder can enjoy life insurance coverage and wealth creation all under a single plan.

The policyholder has the flexibility to choose whether you want to invest in debt funds, equity-oriented funds, or a combination of both.

ULIPs allow you to switch funds if you feel that your investments are not performing well in the stock market. Under such circumstances, you can switch the funds depending on your risk appetite and the market performance of the funds

According to India’s Insurance Regulatory and Development Authority (IRDAI), ULIP’s annual charges range between 2-2.25% only.

To yield high market returns, it is advisable to invest in long-term ULIPs.

The minimum lock-in period is five years, after which you can redeem your policy easily.

Staying invested for a long run will fetch you a good sum of money.

It can generate high to moderate returns depending upon the performance of the underlying assets.

Based on those mentioned above, you may consider ULIPs a better product.

Insight into ULIP vs Term Insurance that May be Beneficial in Making the Right Choice

ULIP vs Term Insurance


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. Whereas ULIPs involve higher charges, and the premium is relatively high.


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

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, you may discontinue the coverage by choosing not to pay the renewal premium 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 difference between ULIP and term plan and their features, your decision must be based on your personal requirements. If you want to secure your family’s future, term insurance will be beneficial for you when you are no longer around. The sum assured is comparatively higher with affordable premiums. At the same time, a ULIP helps the policyholders if they wish to invest their money to build a corpus for the future. The life insurance cover provided also helps you protect your family against unforeseen setbacks and secure your future goals. A ULIP is beneficial for those who do not have the time and resources to manage their investments. Good returns are expected when the money is invested for the long term.

Now you have details regarding ULIP vs term insurance, therefore, analyzing your needs carefully will help you decide between these two types of life insurance policies.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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