Term Insurance vs ULIP
InsuranceTerm insurance provides pure life cover with no investment component -- low cost, high coverage. ULIPs combine life insurance with market-linked investments. For most people, "term + mutual fund" significantly outperforms ULIP on both coverage adequacy and investment returns.
In detail
Comparison for Rs 30-year old, Rs 1 Cr coverage:nTerm plan: Rs 9,000-12,000/year. Pure death benefit. Zero maturity value.nULIP: Rs 60,000-1,50,000/year for "similar" coverage. Significant charges (premium allocation, policy administration, fund management, mortality).nnTerm + MF strategy: Rs 10,000/year term + Rs 50,000/year MF SIP.nULIP charges in early years: 25-50% of premium goes in charges.nAfter 10 years lock-in, ULIPs improve but rarely match pure MF returns.nnWhen ULIP may make sense:n1. Very high net worth with estate planning needsn2. Section 10(10D) exemption if premium below 10% of sum assuredn3. Specific structured products with guaranteed returns (investigate carefully)
Real-life example
Vikram was sold a Rs 1.2L/year ULIP. After 5 years (Rs 6L paid): fund value Rs 4.8L -- loss. He surrenders. Now: Rs 10K/year term (Rs 1 Cr) + Rs 1.1L/year equity SIP. After 20 years: SIP worth Rs 1.1 Cr (at 12% CAGR). His old ULIP would have been worth Rs 80-90L after 20 years (similar total invested). Plus his family was underinsured throughout -- Rs 1 Cr term protects them at 1/12 the cost.