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Difference between ULIP vs. Term Insurance Plan

dateKnowledge Centre Team dateAugust 02, 2021 views374 Views
ULIP Vs Term Plan | Buy the Best Life Insurance Plan

Even an item as basic and clear as term insurance keeps on drawing correlations with more contemporary and complex instruments like ULIPs, which adds to the disarray of new insurers. If you also are contemplating whether to put your savings in a ULIP or buy a term insurance plan instead, here's everything you need to know about ULIP vs. term plan.

What is a ULIP?

A ULIP or Unit Linked Insurance Plan is a mix of both investment and insurance. In ULIPs, one premium segment is paid towards the insurance and is known as a mortality charge. In contrast, the other segment is invested in various investment options like market reserves, securities, debts, values, or hybrid.

The choice of funds is at your prudence. Flexibility in investment and fund exchanging is one of the features of ULIPs. In layman's terms, it implies that you can pick the funds you need to invest in and can switch between any of the alternatives.

The exchange of assets is smooth and doesn't prompt any tax assessment. Nonetheless, the number of free switches is restricted and varies from one insurer to another. Since the purpose of ULIPs is to invest and insure, you likewise need to pay extra charges like policy mortality charges, organization charges, fund management charges, and so forth.

Invest 4G Plan

A ULIP plan offered by Canara HSBC Oriental Bank of Commerce Life Insurance accompanies a saving plan and insurance benefits. For example, the special highlights, loyalty addition, wealth booster, and mortality return on maturity make this policy an ideal alternative to secure your family.

Know more about Invest 4G.

What is a term insurance plan?

A term insurance plan is the purest form of life insurance policy that offers financial protection to your family in your absence. If the policyholder passes away when the term plan is in force, death benefit is paid out to the beneficiaries. A term life insurance plan is affordable and has lower premiums as compared to other types of life insurance plans.

There are various types of term insurance plans and you can choose one as per your financial goals and requirements.

iSelect Star Term Plan

iSelect Star Term Plan by Canara HSBC Oriental Bank of Commerce Life Insurance is a term plan with many choices which make the security more extensive. With the return of premium (ROP) insurance, you'll get all your premiums back if you outlive the policy term. This term insurance provides pay-out on the death of either of the two policyholders and, in some cases, a regular income to pre-mentioned living family members.

How is ULIP different from term insurance plan?

Term Insurance is a plan that benefits the death of the insurer. In other words, it guarantees your family's financial security when you are not around. It fills in as a financial substitute at an affordable premium.

Even though it has no investment segment, it covers your nominee for the plan's duration with no progression in the premium. Likewise, the offered advantage can be improved by clubbing the basic policy with eminent add-ons.

For example, waiver of premium, critical illness rider, accidental death advantage, return of premium, and so forth. The plan span can be somewhere in the range of 5 and 40 years, and if you can't pay the premium because of any explanation at all, your cover will stop. You won't be qualified for any advantage.

It is essential to pick an arrangement that you can manage over the long haul as the premium is steady all through the plan tenure.

While choosing between the ULIP and term insurance, the one major thing you have to consider is your financial plan. If you have a long-term financial goal where you need a planned approach, then term insurance comes as a logical option.

However, if you are also looking for insurance cover alongside your investment, ULIPs are the best option. Before making a call between the two, you must assess your needs and choose the life insurance plan that can easily align with your financial goals.

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Annual Income (In Lacs)

Our Products

TERM Insurance PLAN

TERM Insurance PLAN

Whole life cover option available

Increase your life cover with changing life stages

Return of premium & in-built protection options

Multiple premium payment options

Avail tax benefits on premiums paid as per tax laws


Unit Linked Insurance Plan

8 funds and 4 portfolio strategies to invest

Loyalty additions and wealth booster

Return of Mortality Charge is available on Maturity under all three cover Options

Flexibility of switching between the fund options to take benefits of market movements or change in risk preference

Pos Easy Bima Plan

Top Benefits

Hassle free

Get double life cover in case of accidental death

Choice of flexible premium payment and policy term

Avail tax benefit on premium paid


In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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