Insurance is an investment that you make for the financial security of your loved ones. Insurance products are of two types; the first type offers pure protection while the second type has an investment element attached to it. Investors must keep the pros and cons of every financial product in mind and make a thorough comparison before buying. One such debate is term insurance vs. unit-linked insurance plan (ULIP).
What is term insurance?
A term insurance plan is a very basic form of insurance that provides protection for life. It offers a large cover at a low cost. It provides coverage for a specific period. If the policyholder dies during this period, the insurance company pays the sum assured to the nominee. However, there are no maturity benefits in case of survival. A term plan is a pure insurance product that secures your life.
What are ULIPs?
Before you make a decision to invest in insurance, you need to know what are ULIPs. ULIPs are a product that offers a blend of insurance with investment. A small amount of premium goes towards insurance coverage while the balance is invested in different fund options. The fund value will be paid as maturity benefits. If the policyholder dies during the term of the policy, the fund value or the sum assured, which is higher will be paid to the nominee. Different ULIP products can help achieve long-term objectives like wealth creation.
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Benefits of term Insurance and ULIPs
Both plans have their unique advantages as mentioned below.
Advantages of a term plan
- Affordability
Term plans are available at an economical premium
- Financial security
The sum assured will be paid to the nominee in case of the policyholder’s death
- Tax benefit
The premium amount paid for a term plan is deductible under Section 80C of the Income Tax Act, 1961 up to INR 1.5 lakh. The death benefit is fully exempt from taxes under Section 10 (10D).
Advantages of ULIPs
- Goal-based savings
The biggest advantage of investing in ULIP is to achieve your long term goals. You can choose to invest in different ULIPs as per your financial goals. The corpus amount you receive at the end of the term can be used for achieving goals like buying a house or children’s education, among other ambitions.
- Tax benefit
The premium paid is exempted from tax under Section 80C and all payouts are exempt under Section 10 (10D) of the Income Tax Act, 1961.
What is better term insurance or ULIP?
If you are considering the ideal investment option between term insurance vs. ULIP, you need to understand that there is no sure shot answer on what is better. It totally depends on your purpose of investment and long-term financial goals. A term insurance plan is suitable for anyone looking to secure the financial future of their loved ones and ULIP is a good option for those who want an investment element with an insurance cover.
It is important to carefully consider the costs associated with both the options and then make a wise decision.
