Term Insurance V/s ULIP

The shroud of simplicity

A term Insurance policy offers one’s family or nominee financial security in case of the insured person’s death. This coverage is available for different periods but the benefit is available only on maturity of the policy on the death of the insured. Premiums are paid annually, based on the sum assured and the tenure of the policy. Term assurance is a pure death benefit plan to cover the unfortunate death of the insured and cannot be considered as an investment plan as no benefit accrues to the investor. All the premiums paid over the years will go to cover just one risk, death.Normally the sum assured is 10 to 15 times the annual income of the insured or it can cover liabilities such as housing loans etc.No maturity benefit accrues if the insured person survives the tenure of the term plan.

ULIP

ULIP on the contrary offer a combination of insurance and investment plans, with one part of the premium collected going to cover mortality insurance with the rest available for investments through trading in different funds such as bonds,equities, market funds etc.

ULIP offers flexibility to invest based on a chosen risk profile such as equity, debt or even hybrid funds.The investor can also select the fund in which to invest,without any adverse tax implication though there are only a fixed number of free switches available and the investor has to pay a nominal fee for every additional switch of investment.

Advantages

The advantage of a term insurance is the provision of financial assistance to the family in case of the insured’s death.The premium remains constant based on the age at which the insured enters the scheme It is therefore advisable to start such an insurance at an early age. Term insurance is highly secure and safe and with recent developments, the assured sum is made available to the nominee within a short time after the insured’s demise.The most attractive aspect is the low level of premium and the high level of sum assured , higher than other plans of insurance.

ULIP is a beneficial long term investment with a horizon of minimum 10 year period for decent returns. Both Term Insurance and ULIP have different purposes as a Term Insurance is a pure protection plan while a ULIP plan is an investment cum insurance plan with a high element of risk that is absent in a term insurance.ULIP helps in building a corpus for future needs while a term plan is meant to provide for an insured’s family in case of the insured’s death.

Online Purchase

A prospective insurer is advised to buy a term plan online as it adds considerably to savings as an online policy can save up to 25% on the premium.For example, an online term policy for 30 years , with a sum assured of Rs 1 crore will involve payment of Rs. 19000 if done through an agent and a mere Rs.13000 in premium if bought online,as the additional amount goes to the agent. It is advisable to ignore small differences in premium and go with an insurer one is comfortable with, based on the reputation, promptness in payment and the ICR or Incurred Claim Ratio which indicates the amount of claims paid by an insurer.