Term Insurance vs ULIPs: Which One Should You Choose for Tax Saving?
When it comes to planning your taxes and securing your future, two popular financial instruments often come into play—Term Insurance and ULIPs (Unit Linked Insurance Plans). While both offer tax-saving benefits under Section 80C of the Income Tax Act, they serve very different purposes.
So which one should you choose? Let’s break it down and help you make a smart, informed decision.
What is Term Insurance?
Term Insurance is a pure protection plan. You pay a small premium, and in return, your family gets a lump sum amount (sum assured) if something unfortunate happens to you during the policy term.
✅Low premium
✅High coverage
❌No maturity benefit
💡 Example:
For a 30-year-old, a ₹1 crore term insurance policy can cost as low as ₹500/month.
What is a ULIP (Unit Linked Insurance Plan)?
ULIPs are hybrid products that combine investment and insurance. A part of your premium goes towards life cover, while the rest is invested in market-linked instruments like equity or debt funds.
✅Market returns + life cover
✅Tax benefits on maturity (Section 10(10D))
❌Higher charges and market risk
💡 Example:
If you pay ₹1.5 lakh annually into a ULIP, around ₹1.2 lakh may be invested, and the rest covers life insurance + charges.
Tax Benefits: Term Insurance vs ULIP
| Feature | Term Insurance | ULIPs |
| 80C Deduction | Up to ₹1.5 lakh/year | Up to ₹1.5 lakh/year |
| 10(10D) Maturity Exemption | Not applicable (no maturity) | Applicable if conditions met |
| Tax on Maturity | No maturity benefit | Tax-free if annual premium < ₹2.5 lakh (as per Budget 2021) |
| GST Impact | Lower (18% on small premium) | Higher (18% on entire premium) |
| Ideal for | Pure protection & peace of mind | Those looking for returns + insurance |
Key Differences: Term Insurance vs ULIPs
| Criteria | Term Insurance | ULIP |
| Purpose | Life cover only | Investment + life cover |
| Returns | None | Market-linked returns |
| Cost | Very low premium | High due to fund & admin charges |
| Flexibility | No investment choice | Choose funds (equity, debt, balanced) |
| Risk Level | Zero (fixed benefit) | Market-dependent |
| Transparency | Simple to understand | Complex structure |
Which One Should You Choose for Tax Saving?
✅ Choose Term Insurance If:
- Your goal is financial protectionfor your family.
- You want affordable premiums.
- You already have other investment avenues (like ELSS, PPF, NPS).
- You’re looking for simplicity and clarity.
✅ Choose ULIPs If:
- You’re comfortable with long-term investing(5+ years).
- You want returns + insurancein one plan.
- You’re okay with market risks and charges.
- You prefer goal-based investing(child education, retirement).
Expert Recommendation
For most people, it’s wiser to separate insurance and investment. A term insurance plan offers better protection at a lower cost, and you can invest the rest in high-performing tax-saving instruments like ELSS or PPF.
ULIPs are best suited for those who:
- Want forced long-term savings.
- Are disciplined investors.
- Can evaluate fund performance regularly.
Conclusion
Both Term Insurance and ULIPs offer tax benefits, but they serve very different financial goals. The right choice depends on your risk appetite, financial goals, and priorities.
If your goal is pure protection and peace of mind, go with Term Insurance.
If you want a combination of investment and insurance, and can handle risk, consider ULIPs.
Still Confused? Let Us Help!
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