How to choose the right life insurance policy – Term policy or ULIP

Choosing the right life insurance policy:

Choosing the right life insurance policy is not so easy, there are a lot of insurance policies in the market having the various types of attraction, services provided by the companies.



Here we discuss and understand how the life Insurance policies are and the difference between a Term policy and ULIP (Unit Link Insurance Plan) and which policy is fit for us and fulfill our requirement.

Lets first we look at the Term life insurance policy-

 

What is the Term life insurance policy ?

The Term insurance policy is one of the oldest form of life insurance policy, service provided by the insurance companies, this is also a simple form of the life insurance policy.

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In this type of policy, simply a person gives a sum amount of premium to the insurance companies and the insurance companies cover the life of the person, the insurance companies assure him and provides for payment of the sum assured on death,

But if the life of the person survives (after the policy term year), at the end of policy term year, there nothing is payable to the person. It is a pure risk cover insurance policy that covers the unfortunate death of the person between the policy term year.

Term insurance covers a certain period of time or a specified term of years. In an active policy, if the insured (person) dies during the time period, which is given in the policy, then a death benefit (as the sum assured ) will be paid.
Term insurance policy is not an investment plan. It is an expense for covering life risk and get nothing to the person after completing the policy term year (on his survival ).

You can get tax benefit on the premiums paid on buying term insurance policies,  term insurance policies are much less expensive, compared to other different types of insurance policies available in the market, a person gives a small premium to cover life risk (high sum assured).

 

Now we look at the ULIP (Unit Link Insurance Plan) 

 

What is the ULIP (Unit Link Insurance Plan) ?

ULIP (Unit linked insurance plan) is a life insurance cum investment plan, that provides us insurance payout benefits with the capital appreciation on the investment.

ULIP is opened by a person for both life insurance coverage cum investment plan, the amount is paid by the plan buyer as a premium for a specified time for both life insurance coverage cum investment plan.

Investment options of ULIP (unit link insurance plan) are likely structured similar to a mutual fund.

ULIP (unit link insurance plan) assets are managed by a specified body (asset management company or in short form called AMC). The body daily calculates net asset value of the relative unit and this called NAV (net asset value), this NAV is the per unit value.

The premium can be paid one time or monthly or three months or six months or yearly as per said by the policy norms. In the ULIP plan, some amount of the premium goes for life insurance coverage and some amount of the premium goes for investment (in the equity share or bond or debenture or any mix plan as described in the policy norm or what the investor has opted the option on filling the policy form).

As per ULIP plan any unfortunate death of the insured person, the beneficiary ( nominee given by insured person ) would receive payments both the sum assured amount (life coverage) and the value (NAV) of the units on the current market price.

On the survival of the insured person after the policy term year, the insured person will get the value (NAV) of the units on the current market price and the sum assured amount as per policy norm.


 

That means ULIP (Unit link insurance plan) is both life insurance coverage cum investment plan, but in this plan, you can not get high life insurance coverage (sum assured amount) as like Term insurance policy, because the most amount of the premium goes to the purchase of the units and a small amount of premium goes for life insurance.

As we see both Term insurance plan and ULIP (Unit link insurance plan) are good on its ground, as per a personal requirement. If anyone wants to a high life insurance coverage (sum assured amount) can buy a Term insurance plan, If anyone wants both life insurance coverage cum investment plan can buy ULIP (Unit link insurance plan).

Anyone can buy ( if can afford ) both Term insurance plan and ULIP (Unit link insurance plan) for both high life insurance coverage (sum assured amount) + investment plan for a better life.

In the next chapter (post) we discuss about an endowment plan.

Read more –

Choose insurance policy Endowment plan or Term life policy.

Easy affordable term life insurance policies in USA

 

Note: Posted by Ajay Srivastava a former life insurance adviser (Tata Aig Life Insurance).