ULIP VS Term Insurance: Which is better to opt for?
Financial planning is necessary for everyone to manage expenses caused by inflation. A wide range of options is available in the markets today for this purpose that will help accomplish goals to a large extent. On the other hand, it is necessary to know more about them in detail before investing money. A term insurance plan is ideal for protecting your family from financial risks during their absence. It offers coverage not only for death but also includes rider benefits to lead a trouble-free life.
The United Link Insurance Product, shortly known as ULIP, provides insurance benefits as well as wealth creation for policyholders under a single plan. In addition, it provides opportunities for generating more income in various ways. At the same time, ULIP plans have certain risks, and a policyholder should understand them in detail. Unfortunately, most people don’t know the differences between term insurance plans and ULIPs due to the lack of ideas and other factors. Therefore, it is imperative to compare a term life insurance plan and ULIP before investing money. Moreover, a policy buyer can make the right decision when it comes to investments.
What are the key features of term insurance?
- A term plan provides a death benefit to a nominee upon the death of a policyholder.
- Some insurers offer the pans with maturity benefits, and a policyholder gets the return of premium on surviving the policy term..
- The premium prices of term insurance plans are affordable, and policyholders can buy them with ease.
- A term insurance policy offers rider benefits for policyholders in case of illness, injury, accident, or disability with additional charges.
- Policyholders can even choose plans with tenure till their retirement that will help overcome the financial burden in the future.
- The plan doesn’t accumulate wealth and provides compensation for the loss of income when a policyholder is not around.
- One of the main advantages of a term life insurance plan is that it gives ways to provide a lump-sum amount to nominees.
- Nominees can receive the lump-sum amount in installments based on their choices.
What are the key features of ULIP?
- The plan enables policyholders to invest in the markets with options based on the risk factors.
- A policyholder can inculcate a regular saving habit that will help a lot to build a corpus for future needs.
- Policyholders can withdraw their amount partially in case of any unforeseen future events.
- ULIPs offer the flexibility to switch over funds for a better market return when the investments don’t perform well in the markets.
Knowing the difference between a term plan and ULIP
A policy buyer should know the difference between ULIP and term plan properly that will help gain more ideas. Not only that, it gives ways to focus more on the objectives properly, which offers ways to accomplish goals in financial planning.
- Type of policy: A term life insurance policy is purely a life insurance product that comes with rider benefits that help to ensure complete protection from unforeseen events. It doesn’t cover any wealth creation and offers a lump-sum amount to nominees when a policyholder is not around. ULIPs offer both coverage and wealth portfolios that will increase the revenue.
- Lock in-period: A term policy doesn’t have a lock-in period, and policyholders will receive the entire benefits on death. At the same time, ULIPs have a lock-in period, and a policyholder should know about it from different sources.
- Affordability: Buying a term policy is affordable because it just offers death cover. However, ULIPs have maturity benefit, death benefit and several charges associated with a plan, and the premiums are expensive when compared to a term policy.
- Financial protection: In term policy, a nominee will get the sum insured amount when a policyholder dies due to an accident or other factors. ULIPs will pay the sum insured amount or the market linked return whichever is higher to a beneficiary during unforeseen events.
- Maturity benefit: A term life insurance policy provides no maturity benefits unless opted for return of premium plans. ULIPs allow a policyholder to redeem units at the prevailing unit prices.
- Switching options: Term life doesn’t come with any switching options, whereas ULIPs allow a policyholder to switch between the funds linked in the plan. Not only that, it is possible to change the risk returns in a ULIP plan.
- Tenure: Insurance companies offer both short-term and long-term plans for policyholders, and they can choose them based on their choices. Some even provide life-long renewability options that will help get benefits for a long-time. A policy buyer can also select a plan until his/her retirement to ensure financial security. The tenure of ULIPs depends on the investment plans, and policy buyers get good returns on investments from 10 to 15 years.
- Charges: Term insurance policy buyers have to pay only for the death cover. ULIPs come with many changes that will result in high expenses. Some of them include allocation charges, fund management fees, policy administration charges, fund switching fees, etc.
- Investment Options: A term life insurance doesn’t come with any investment options. At the same time, ULIPs offer various investment choices such as mutual funds, debts, bonds, equities, etc.
Term insurance VS ULIP: Which one is better to invest in for future needs?
Investors should know the differences between the term plan and ULIP before investing money that will help gain more benefits. They should focus more on evaluating the pros and cons of both plans properly to make an informed decision. It is challenging to decide ULIP or a term plan, which is better because both of them come with two different purposes, thereby helping to accomplish goals in the markets. Anyone who wants to build a corpus for future needs can select a ULIP plan after doing complete research. The primary objective of a term policy is to safeguard loved ones from financial crunches when a policyholder is not around.