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ULIP vs Term Insurance: What is the Difference?

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Insurance, investment and savings are the three most important parts of an effective financial plan. Given the high importance held by both investment and insurance products, most providers offer life insurance-only products while a few combine investment and insurance together to create a hybrid product. Terms life insurance plans are an example of products offering pure insurance benefits and ULIPs are an example of invest-cum-insurance products. Both these types of plans have their pros and cons. It is important to be well-versed in the two plans before you make your choice.

Differentiating ULIP and term insurance can be tricky, especially if you are new to the life insurance and investment sector. This ULIP vs term insurance article will attempt to understand both products in detail. Read through the article to get better clarity on what they mean, the pros and cons and which one is suitable for you.

ULIPs or Unit Linked Insurance Plans

ULIP or unit-linked insurance policy, is an insurance plan offered by companies that provide advantages of both insurance and investment. A part of your premium goes towards the term insurance policy, and the other part is invested in different investment ventures, such as equity funds, debt funds, money market funds etc.

Let’s assume that you have a ULIP with an annual premium amount of AED 12,000. You divide the premium paid into two parts – AED 5,000 and AED 7,000. AED 5,000 is to be used for your insurance premium, and AED 7,000 is to be used for investment purposes.

In case of the policyholder's death, the nominee receives the fund value or sum assured, whichever is higher. If the policy matures because the policyholder survives the term of the plan, they will receive the fund value as a maturity benefit.

What makes ULIP a viable option is that you can choose the type of funds you want to invest in depending on your financial goals and risk appetite. You may also switch the funds in the middle and revise your investment portfolio. However, note that you might be allowed to switch between funds only a limited number of times.

Features of ULIP

To properly understand the ULIP vs term insurance concept, you first need to know the features of unit-linked insurance policies.

Given below are the same:

  • This plan offers dual benefits which allow you to enjoy both life insurance coverage and wealth creation at the same time.
  • You get the flexibility to choose the type of fund you want to invest in. Depending on your risk appetite, you can choose between debt funds and equity funds or opt for a combination of both.
  • You can also switch between funds to receive better returns. If you feel like your chosen funds are not performing well in the market, you can switch between funds as per market performance.
  • ULIPs tend to generate higher returns in the long run and hence help you create comprehensive financial protection cover for your family members.

Term Insurance Plans

Term life insurance is a pure death benefit plan that ensures the family's financial security in case of the death of the insured. It serves as a form of income replacement in the event of an unfortunate such as the death of the insured. Term insurance plans are highly affordable. If the policy matures, the dependents or the insured generally do not receive any benefits. If the policyholder purchases a return on premium term plan. The insurer pays back the premiums paid at the end of the maturity period.

You can also enhance the benefits of this plan by purchasing a few add-on covers, such as critical illness cover, return of premium, accidental death benefit and more. These add-ons cover are known as the living benefits of the plan.

Features of Term Insurance Plans

Similar to ULIPs, term insurance plans come with their own set of unique features.

Find about them below:

  • It is a pure insurance policy offering death benefits to the nominees in case of the policyholder’s death.
  • Some term insurance plans also come with maturity benefits such as return on premium. The premium amount for such plans is generally on the higher side.
  • Term insurance plans are some of the most affordable life insurance products available in the UAE. You simply need to pay a minimal premium amount to enjoy comprehensive benefits.

ULIP vs Term Insurance: Which is Better?

Several potential customers wonder whether to choose a ULIP or a term plan to cover their life insurance-related requirements. However, there is no set formula to make this choice. It entirely depends on your individual requirements.

Term insurance plans are a risk-free option that offers comprehensive financial security to the family members in case of the death of the insured. These plans make sense for you if you are looking for plans with low premiums offering a substantial death benefit to your dependents.

You get to enjoy the death benefit along with the advantages of the investment component when it comes to ULIPs. Unlike term plans, the insured here is liable to receive the value of the fund upon maturity and hence can achieve their long-term financial goals. ULIPs are the ideal choice if you wish to properly divide your contribution between investment and insurance.

In a Nutshell

If you are a budding investor in UAE pondering over a decision regarding your future insurance and investment plans, the knowledge of ULIP vs term insurance will come in handy for you. Properly analyse your options, and their benefits and determine which one aligns with your financial goals the best before making the final choice. Whichever investment option you choose, make sure to go through the policy terms before signing anything. You may also connect with our in-house experts to choose the right plans for your financial needs and proceed to make the purchase using our user-friendly digital platform. Finding the right fit for your insurance and investment needs is a matter of minutes with Policybazaar UAE as your insurance partner.

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