Which Plans Are Better In Terms Of Returns - Term Plans Or Ulips?

A long standing debate amongst Indians regarding life insurance covers is whether to go for a term plan or a ULIP

. There are many theories both for and against them. However, instead of simply relying on these theories, it is important to understand how these plans suit you, so that you can take an informed decision.

Term Plan

Typically a term plan provides the policy holder a cover for a certain sum for a specific period. Since this is purely a risk plan, the policy holder does not receive anything from the insurance company in case he survives the specified term. In the event of his death during the policy term, the dependents are compensated by the insurance company. Also, since it is a basic insurance plan the premiums are much cheaper than other types of life insurance policies.

ULIP

A unit linked insurance plan (ULIP) combines life insurance with investment. Thus in a ULIP the premium paid is divided into two parts. Once the fees and charges are deducted, the insurance company allocates a part of the premium to provide a risk cover, and the rest is invested in a fund chosen by the policy holder.

As in mutual funds, investors in ULIPs are allotted units by the insurance company and a net asset value (NAV) is declared for the same on a daily basis. The value of investments made in the ULIP alters with the performance of the underlying fund chosen by the policy holder. Under ULIP, a policy holder can invest in a fund according to his risk appetite. The options offered are Equity Funds, Income Funds, Cash Funds and Balanced Funds.

So, which one is better, ULIP or Term Plan?

The answer to this question lies in your expectation from your insurance plan. If you believe in separating your investments from your risk, and hence look at insurance as a tool only to provide life cover, then term insurance plan is what you should opt for. Though premiums are cheaper, do remember that you will not receive any returns at the end of the tenure. On the other hand, if you are comfortable with a financial tool which combines your investment and risk goals, then opt for a ULIP. Though a ULIP will never offer the kind of sum assured as a term policy, you will have a sizeable return along with a life cover at the end of the tenure.

by: Sudeep Desai

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