How is a Term Life Insurance Different From Unit-linked Insurance Plan?

People are often puzzled with the various kinds of term plan policies available in the market. They fail to understand that the different types of life insurance policies are designed to cater to the needs of different individuals and groups. Such as there is confusion related benefits of buying online term plan or even the difference between term insurance and Unit linked insurance plans (ULIP). So, in this blog, we will try to understand how term plans and ULIPs are different from each other.

Understanding the concept of term life insurance and its advantages

The term policy offers a high coverage amount against a pocket-friendly premium payment. It is one of the most reasonable and rewarding life insurance products in the country. Buying an online term plan is one of the most preferred insurance products among Indians, looking at today’s scenario of increasing uncertainties, high cost of living, and rising inflation rate. However, it must be clarified at the beginning of the policy that the premium amount for term insurance plans is less because it does not offer any maturity benefit which means there is no investment element involved in it. Term Insurance only yields benefits on the untimely demise of the policyholder within the policy tenure.

Then there are Unit linked insurance plans (ULIPs)

Unit Linked Insurance Plans are not at all as same as term life insurance. ULIPS offer life coverage as well as investment options wherein your money grow with time and offer annualized returns. That is when you put your money into ULIP, one part of the premium money is paid towards the life insurance policy while the other part is invested into bonds, equity, debts or in any hybrid funds.

This form of life insurance offers a lower extent of risk than the other investment products that are associated with the business sectors. The insurance provider invests the funds in such high-grade securities which offers high growth at low risk. For instance , your investment may gather 10 percent returns every year with a minimum chance of negative performance. Furthermore, you get tax exemption under Section 80C for the premiums paid for the insurance plan

Here are more details about the difference between both that might help you understand the Term plan vis-a-vis ULIPs in a better way.


1. Financial Security –

a) Term Plan – The nominee of the policy gets the death benefit amount in case something happens to you.

b) Unit Linked Plan – If something happens to you, the insurance coverage amount is given to the beneficiary of the policy. In addition, the money that has been invested earns money that is invested could make returns based on the conditions of the market and help in fulfilling the long-term financial goals.

2. Affordability –

a) Term Plan – Term plan premiums are the lowest in the market.

b) Unit Linked Plan – ULIP premiums have several charges connected to it; therefore, the premiums are considerably on the higher side.

3. Tax Benefits –

a) Term Plan – The premiums paid towards a term plan are eligible for tax exemptions under Section 80C of the Income Tax Act. Term life insurance premiums up to Rs. 1.5 lakh per annum is allowed for tax deductions. And the death benefit amount received by beneficiaries is also fully exempted from any taxes under Section 10 (10D).

b) Unit Linked Plan – The premiums paid towards ULIPs entitled for tax rebates under section 80 C of the Income Tax act., 1961. Also, the pay-out received comes under tax exemptions under section 10D of the Income Tax Act.

4. The flexibility of investment –

a) Term Plan – Term Plans don’t offer any maturity benefit and thus don’t have any investment element included in it. It only provides benefits in case of the policyholder’s death within the tenure of the insurance plan.

b) Unit Linked Plan – ULIPs offer a range of options for investments such as equities, bonds, debts, market funds, and more. You can choose any of these based on your risk appetite while considering other financial aspects. You can also switch from one fund to another to earn more returns.

Now which one you should opt for: Term protection or ULIPs?

The majority of people prefer buying online term insurance as they are low on risk, simple to understand, and offer financial security to their loved ones in the form of a substantial insurance coverage amount. Those who don’t wish to put their money into costly life insurance, yet just want to ensure and safe and secure future for the family, term insurance is an ideal option.

On the other hand, a Unit Linked Insurance Plan is better if you want to pick up returns on your premiums along with providing life coverage to your family. Unlike term life insurance plan, in ULIPs, you can enjoy maturity benefits along with returns on investment that could help in fulfilling your long-term goals.

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