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Ulip or term insurance? What's better?

May 27, 2009 16:05 IST
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Looking for a suitable insurance to meet your insurance cover? Confused by the differing opinions of financial advisors whether Ulips are better than term insurance or vice versa?

Want to know how to choose between the two? Then read on to know how to go about it in order to get the best insurance for your needs.

Features of term insurance vis-a-vis Ulip

Term Insurance


Investment component



Maturity Value


Value of the corpus invested in different assets like stocks, bonds and cash


Not declared by the insurer

Declared by the insurer

Insurance term

Short term

Long term, with the compulsion to pay premium for at least 3 years


Decided on the basis of age and health condition

Decided on the basis of your payment capacity

Insurance cover

Very high


Suitable for

Those having dependents or have liabilities like home loan

Those looking to avail of investments along with life cover and tax benefits

Performance issues

Not Applicable

Need to be considered as the charges, and performance of funds of different insurers varies significantly.

Premium charged


Highest as part of the premium goes towards investment

So from above, you can safely conclude that Ulips are similar to mutual funds except that they provide life cover, tax benefits and need to be kept for long term.

On the other hand, term insurance is actually insurance where your dependents get sum insured in case you die, but nothing if you outlive the insurance term.

Pros and cons of term plans and Ulips

Both term plans and Ulips do have their benefits and drawbacks. Here are some of them.

Term plan: Pros

  • Highest sum assured
  • Lowest premium charged
  • Can be stopped at the end of premium term, as the life cover exists only for the year for which premium is paid.
  • Simple to understand.

Term plan: Cons

  • No maturity value as there is no investment component.
  • Available only up to 50 years age and the life cover will continue only till 65 years. Also those insurers who offer insurance cover to seniors end up charging very high premium.
  • No provision to increase the premium with the increase in income.

Ulips: Pros

  • You get returns when the policy matures
  • Can increase the premium as per increase in your income.
  • Flexibility of investing across various asset classes, thereby helping you maximize returns.
  • Long-term investment, helping you inculcate value of savings

Ulips: Cons

  • Very high charges
  • Nominal insurance cover
  • Difficult to compare amongst Ulips from other insurers due to non-standard charges, asset allocation, etc.
  • Inability to pay the premium will lead to lapse in policy. Also despite many insurers telling you that paying premium for 3 years is enough, remember mortality charges will be deducted from the corpus invested.
  • If the value of the corpus is lesser than the mortality charges due to erosion in the value of the underlying asset, your life cover will stop. Your policy will lapse and you will have to take a fresh policy.

How to decide whether to opt for term insurance or Ulip?

If you need to decide which one to choose, answer these questions:

  • Do you have dependents?
  • Do you have a liability like a home loan?
  • Are you young and want cheap insurance with high life cover?

If you have answered yes to these questions, then term plan is must for you.

On the other hand if you answer yes to these questions, then opt for Ulips:

  • Can you afford to pay high premiums till the end of policy term?
  • Are you looking for an investment option along with insurance and tax benefits?
  • Are you saving towards a particular goal?

Both term plans and Ulips have their pros and cons. Which one is suitable for you will be decided by your personal circumstances. Always take them into account before choosing the right one for you.

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