Term Insurance vs ULIPs: Which Is Better for You in 2025?
Introduction
When it comes to life insurance in India, two products are often compared—Term Insurance and ULIPs (Unit Linked Insurance Plans). Both serve different purposes but are often misunderstood. While term insurance offers pure protection at low premiums, ULIPs combine insurance with investment.
In this article, we’ll break down Term Insurance vs ULIPs in 2025, their pros, cons, tax benefits, and help you decide which one is right for you.
What is Term Insurance?
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A pure protection plan that provides a large life cover at an affordable premium.
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Example: A 30-year-old can get ₹1 crore cover for less than ₹700/month.
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No maturity benefit—if the policyholder survives the term, nothing is paid.
Best For: Families who want maximum financial protection at low cost.
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What is a ULIP?
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A Unit Linked Insurance Plan that combines life insurance with investment.
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Part of your premium goes towards life cover, while the rest is invested in funds (equity, debt, or hybrid).
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Offers market-linked returns along with life cover.
Best For: Investors who want insurance + wealth creation together.
Key Differences: Term Insurance vs ULIP
| Feature | Term Insurance | ULIP |
|---|---|---|
| Purpose | Pure protection | Protection + Investment |
| Premium | Very low | Higher |
| Returns | No returns | Market-linked returns |
| Flexibility | Fixed cover | Can switch between funds |
| Risk | Low | High (depends on market) |
| Best For | Families seeking financial security | Long-term wealth builders |
Pros & Cons of Term Insurance
✔ Pros
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High coverage at low premium.
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Simple and easy to understand.
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Tax benefits under Section 80C & 10(10D).
✘ Cons
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No maturity value.
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Only beneficial if policyholder dies during the term.
Pros & Cons of ULIPs
✔ Pros
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Dual benefit: Insurance + Investment.
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Flexibility to choose funds (equity/debt).
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Long-term wealth creation.
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Partial withdrawals allowed after lock-in.
✘ Cons
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Higher premiums.
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Market risk involved.
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5-year lock-in period.
Tax Benefits in 2025
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Term Insurance – Premiums up to ₹1.5 lakh deductible under Section 80C, death benefits are tax-free under Section 10(10D).
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ULIPs – Premiums also deductible under 80C, and returns are tax-free if annual premium ≤ ₹2.5 lakh (as per latest rules).
Which Should You Choose in 2025?
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Choose Term Insurance if:
✔ You want maximum life cover at minimum cost.
✔ You already invest separately in mutual funds, stocks, or FD.
✔ Your main goal is family’s financial protection. -
Choose ULIP if:
✔ You want insurance + investment in a single product.
✔ You can stay invested for 10–15 years.
✔ You are comfortable with market risks.
FAQs
Q1. Can I have both Term Insurance and ULIP?
Yes. Many financial planners suggest having a term plan for protection and investing separately in ULIPs or mutual funds for wealth creation.
Q2. Which gives better returns—ULIP or Mutual Funds?
Mutual funds generally provide better returns with lower charges, but ULIPs offer insurance + tax benefits.
Q3. Is ULIP risk-free?
No. ULIPs are linked to the stock market and carry investment risk.
Conclusion
In 2025, the choice between Term Insurance vs ULIP depends on your financial goals. If protection is your priority, go for a term plan. If you want long-term investment with insurance, choose ULIP. Ideally, a mix of both provides the best balance of security and wealth creation.
