Life Insurance or ULIP Policy – Which One Do I Choose?

The future financial safety and security of your loved ones is a topic on which one should devote utmost attention. In case anything unfortunate happens to you, they should be financially prepared to deal with the consequences and to meet their monetary objectives. The best way to achieve that is to buy life insurance. Now, in recent years, the life insurance sector has introduced several insurance products, amongst which ULIPs have gained popularity. The ability of ULIPs to merge insurance with investment can make one ask – Should I opt for a ULIP or the traditional life insurance plan?

The primary difference between life insurance and ULIP

Life insurance 

The aim of this type of policy is to provide you with a life cover – nothing more, nothing less. You buy a life insurance policy; you pay the premiums as required; the insurer covers you for life or a particular term, as specified. If you pass away within the covered period, your chosen beneficiaries are eligible to receive the death benefit pay-out. The tenure of the policy remains as long as the term mentioned in the policy and the premiums paid regularly. If you want to get an estimate of the premium you will possibly pay for a life policy, you can take the help of a life insurance premium calculator.


ULIPs or Unit-Linked Insurance plans are a unique combination of insurance and investment. They, too, offer life cover, which is provided to the policyholder’s loved ones if the policyholder passes away due to any unfortunate event. However, the premium for a ULIP is used for two purposes – building the insurance cover and for investing in financial instruments. The returns you receive on your share of the investment are highly subject to how the market is performing.

Now that the basic difference is clear, let’s take a look at a few questions that will help you approach the matter at hand with better clarity.


What to ask before you choose life insurance or a ULIP

What are you looking for in your insurance policy? 

If you are simply looking for security, then a life insurance policy is the best bet for you. It is quite fuss-free as well, since you do not have to worry about how your funds are performing. However, there is no liquidity with such a policy either.

If you are looking for security + returns, then you should highly consider a ULIP. ULIPs have been known to perform quite well and bring in good returns, almost similar to mutual funds. Once the lock-in period of five years is complete, you can even make partial withdrawals to support your financial objectives. What is quite assuring is the fact that no matter how the investment performs depend on the market, the life cover does not get affected.

What is your risk-taking capacity? 

If you are the sort of person who does not prefer to take any risks and would rather save than invest, then the conventional life insurance policy would be the ideal policy for you. Even though you may not get any returns, you are also spared the risks associated with it. This does not imply that a ULIP policy is completely risky either. One good feature of ULIPs is that you can choose from a variety of financial instruments according to your risk-taking capacity. Those with higher risk-aversion can opt for low-risk debt funds. Those with a higher digestibility for risk can consider equity funds. One can also choose a combination of both for a balanced portfolio. ULIPs also allow one to switch between these funds as per one’s wish.

How much are you willing to pay for your insurance policy? 

Since a life insurance policy is a pure protection plan concerned only with providing the life cover, the only costs you will have to bear will be the basic premium. The life insurance premium calculator can also help you understand the various factors that influence the premium cost for you. Generally, there are no additional charges in a life insurance policy.

In a ULIP, one may have to pay additional charges, such as administration charges, fund management charges, and so on, on top of the premium. These charges help the insurer in the handling and investing of your investments.

Note: Whether you buy life insurance or a ULIP, the premiums you pay for each type of policy are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.