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Difference between Life insurance and ULIP

Difference between Life insurance and ULIP


The importance of having a good and adequate amount of insurance is well known to most people. Such plans can help navigate the uncertainties of life by financially securing the future of insured persons and their families.

Traditional insurance for life and Unit linked insurance plans are the two most popular types of insurance in India. However, despite both being insurance products, some remarkable differences set each one apart.

Therefore, individuals need to know the differences between these insurance products before deciding to buy one.

Similarities Between Life Insurance and ULIP

  • Both are life insurance products. This means both of these come with death and maturity benefits for the policyholders and their beneficiaries. 
  • They are regulated by the Insurance Regulatory Development Authority of India (IRDAI).
  • Policyholders can claim tax exemption under Section 80C on premiums paid towards both life insurance and ULIPs.
  • All these products are long term investment options. 
  • Insurance premiums can be paid quarterly, half-yearly, or annually.

Difference Between Life Insurance and ULIP

Parameters Life Insurance Unit Linked Insurance Plan (ULIP)
Definition It provides insurance cover to the insured policyholder. It provides insurance cover as well as an alternative investment option to the policyholder.
Fund Utilization The entire premium amount is invested in the insurance fund of the policyholder. A portion of the premium amount is invested in market-linked products like equities, and the rest of the amount goes towards providing insurance cover.

The policy buyer can choose the amount of exposure to the equities.

Top-up Facility The premium amount remains the same for the entire period of investment. Individuals can invest their surplus funds as Top-ups to their existing investments.
Stability of Return on Investment These are low risk plans that can provide fixed and stable returns.  These are high-risk investment options. 

There are no guaranteed returns as ULIP returns can vary depending upon the market volatilities.

Lock-in Period  Generally, such plans can have a 3-year lock-in period. You can choose to discontinue the policy and get the surrender value once the lock-in period is over. ULIPS, generally, can come with a 5-year lock-in period, after which you can either discontinue the plan.


Which One Is Better?

It would be unfair to pitch these two types of insurance plans against each other as each one aims to fulfil a different set of goals. 

While life insurance can be a good option for risk-averse individuals looking for assured maturity benefits, ULIPs are better suited for persons willing to take risks on their investments and ride the market volatilities for potentially higher returns. 

Furthermore, ULIPs can be a good option for people who want a combination of insurance and investment in a single product. However, you should opt for traditional life insurance if you believe in keeping insurance and investments separate from each other.

Now that you know all the differences, set your financial priorities first and choose the right type of insurance that can best suit your long-term financial objectives.