When it comes to making a sound financial decision, it is necessary to have a balanced investment and insurance strategy in place. Today, people have a plethora of investment and insurance options available in the market. In addition to the traditional plans, investors have options to choose between unit-linked insurance plans (ULIPs) and term insurance plans.
However, choosing between these two can be a little confusing. To help you decide, let us discuss what is ULIP plan and term insurance plan. Let us begin by understanding ULIPs.
What are ULIPs?
ULIPs stands for Unit Linked Insurance Plans. It is primarily an insurance instrument, which also offers the benefits of investments. You can choose to invest in funds such as debt funds, equity-oriented funds, or a combination of the two.
The features and benefits of the ULIP Investment Plan are as follows –
- The policy offers dual benefits of life insurance cover and wealth creation via market-linked investments.
- You get to choose the funds you want to invest in – debt, equity, or hybrid funds.
- You have the liberty to switch between the funds based on the market performance for better ULIP plans returns.
- ULIPs are long-term investments and produce better returns when invested in the long run. Hence, the policy comes with a five-year lock-in period.
- You can make partial withdrawals from the policy after the completion of the lock-in period.
- The premiums paid towards the plan can be claimed for tax deductions under Section 80C of the old income tax regime. In addition, the maturity and death benefits offers are tax-free under Section 10(10D) of the Income Tax Act, 1961.
Now that you have a brief idea on what ULIPs are let us take a look at term insurance plans available in India.
What is Term Insurance?
Term insurance is one of the simplest life insurance products available in the market. Ideally, the policy ensures financial security to your loved in case of your untimely dismissal. The policy pays death benefits to the beneficiaries in case anything were to happen to you.
However, traditional term insurance plans only offer death benefits. To make the policy a little more flexible, insurers in India offer rider benefits. The rider benefits enhance the scope of the policy so that it can fulfil yours and your family’s needs. You can opt for rider benefits such as critical illness benefit, the return of premium benefit, accidental death benefit, and more.
Some features and benefits of term insurance are as follow –
- Term insurance plans are the most affordable life insurance product available in the market. You can avail high sum assured amounts at reasonable premiums in India.
- The policy offers death benefits to the beneficiaries in case of your premature dismissal. That way, your family’s financial future is secured, and your absence will not hamper their future aspirations.
- You can enhance the scope of the policy with rider benefits. You can choose the return or premium cover to receive the premiums paid towards the plan in case you survive the tenure. You can opt for critical illness benefit to take care of the expenses arising in the treatment of any critical health condition in the future.
- The policy also offers tax benefits. The premiums paid toward the plan can be claimed for tax deductions under Section 80C of the old tax regime. The death benefits received by the beneficiaries are tax-free under Section 10(10D) of the Income Tax Act, 1961. Additionally, one can avail tax benefits under Section 80D if opted for critical illness cover.
What to choose?
Choosing the right insurance plan can be confusing. But we cannot make that decision for you. An insurance policy should be purchased after considering a few things.
These include –
- What is your current financial status?
- What are your monthly expenses?
- What are your future financial goals?
Based on your answers to the above questions, you can then decide whether you should choose ULIPs or term insurance plans. You can always compare these policies online and select a plan that fulfils your rising insurance demands. No matter what you do, ensure to invest in a secure financial future.