What is the Difference Between ULIP and Term Insurance Plan?

What Is a Term Insurance Policy?

What is ULIP?

What Are the Differences Between Term Plan and ULIP?

The difference between ULIP and term plan is as follows:


Term Insurance



Serves as insurance only.

Serves as both insurance and investment.

Who Should Purchase

If you are the only breadwinner of your family or want financial security for your family.

If you are looking for both an insurance and investment option within the same plan.

Who Can Benefit

Your nominee in case of your untimely demise.

You and your family members both can benefit from the returns.

Investment Options

The entire premium is used for life coverage and not invested in money market funds.

A part of your premium is invested in money market funds for wealth creation.

Insurance Options

The entire sum is used for insurance premiums.

Some amount is kept aside as insurance premiums.


It offers death benefits to the nominee on raising a claim.

Depends on the volume of money and market performance of the fund.

Right Time to Purchase

In the early stages of life.

Any time when you want to purchase it.

Cost of Premiums

Comparatively lower than ULIP

Significantly higher than a term insurance policy.

Lock-In Period

No lock-in period

About 5 years

Additional Charges

No additional charges are associated with a term insurance policy.

Numerous – for paying agents, switching between funds, fund allocation charges, and fund management fees.


Highly secured

Involves risks

Switching Options

You cannot switch within the plan.

You can easily switch between the fund types to maximise profit.

Selection Criteria

Choose a cover keeping in mind your family’s needs.

Select a fund according to your investment pattern and return expectations.

Financial Protection

In case of your untimely demise, your nominee can receive the sum assured.

In case of your untimely death, your nominee can receive both the sum assured and returns of investment in the ULIP funds.

Policy Tenure

You can select any tenure according to your convenience.

You have to select a tenure beyond 5 years.

Now that you have a clearer idea of term insurance vs. ULIP, it is essential to figure out which one is more suitable for you. If you are looking for an investment option and wouldn't mind paying a higher premium, then you can go for ULIP. Otherwise, only for financial protection purposes, you can go for a term insurance plan.

FAQs on the Difference Between Term Insurance and ULIP

Can I receive a tax benefit on the claim amount in the case of ULIPs?

Yes, you can claim tax benefits under Section 80C and Section 10D of the Income Tax Act 1961. This way, you can receive a tax deduction on premiums and tax-free claim amounts during death benefits.

What are the benefits of ULIP?


The benefits of ULIP are as follows:

  • You can seek financial protection and indulge in wealth creation with only one premium.
  • You can receive tax benefits up to ₹5 Lakhs on your insurance premiums.
  • There are several fund types available from which you can select one as per your investment choice. 

When is the right time to invest in ULIP?

The right time for ULIP investment is when you have a steady income source. This is highly essential as the premiums of ULIP are comparatively high and missing out on them can lead to termination of the policy.

Can you surrender a term insurance policy?

Yes, you have the flexibility to surrender a term insurance policy. However, the value of the policy after this decreases considerably.