Should You Buy a ULIP Plan or Simply a Life Insurance Policy?

When it comes to securing the financial future of your loved ones, you look for the best possible option. This applies to the choice between a unit-linked insurance plan (ULIP) and a life insurance policy.

A ULIP offers not only insurance but also investment options. Here, the balance of the payment is allocated to your chosen funds after the insurance or mortality cost is deducted. The goal of ULIPs is to help you with wealth creation. Since market conditions influence their returns, these plans are market-dependent.

On the other hand, a traditional life plan simply offers a lump sum with bonuses after a certain duration or on death. The benefit is assured irrespective of the survival or demise of the life assured.

Here are the differences between the two kinds of plans to help you make an informed choice between them.

Sustainability Factor

A ULIP plan is suitable if you want a long-term investment option. As its primary component is that of investing, it helps in wealth accumulation.

A life insurance plan offers a lump sum payment or consistent income payouts to your loved ones. Sometimes, the premiums are paid back if the life assured lives till the policy tenure ends.

Sum Assured Benefit

With a ULIP plan, the beneficiary receives the sum assured in the case of the policyholder’s demise. On the other hand, the investments get returns depending on market conditions. This helps fulfil long-term financial goals.

With a life insurance policy, only the sum assured is paid to the beneficiary in the event of the policyholder’s unfortunate death.

Charges and Expenses

The costs of managing unit-linked insurance plans are significant due to no limit set by the IRDAI. Expenses include fund management fees, premium allocation costs, life insurance mortality fees, and administrative costs.

In a life plan, the charges and expenses depend on the chosen policy and encompass premium allocation costs, mortality fees and more.


A ULIP plan includes various investment avenues like exchange-traded funds, stock options, loans and more. You can pick from any of them based on your financial considerations and risk appetite. To maximise your earnings, you can also switch between funds.

A life plan also has flexibility but in a different sense. For instance, you can choose your policy term price, premium amount, cover amount and more.

Tax Benefits

With a ULIP plan, the payments earned qualify for tax exemptions under the Income Tax Act, Section 10D. Moreover, the premium payments to the plan are eligible for tax deductions according to Section 80C.

In the case of a life insurance plan, annual payments up to ₹1,50,000 are exempt from taxation under Section 80C. The death benefit is also exempt from taxes as per Section 10 (10D).

In brief, ULIPs allow wealth accumulation and help provide financially protect to your family in hard times. Life insurance solely offers the latter benefit and helps safeguard your loved ones financially after you pass away. So, it is suggested to make your choice based on your personal and financial requirements.

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