Need Adequate Life Insurance? Invest in Both ULIPs and Term Insurance

Jun 04, 2018 | 5 months ago | Read Time: 2 minutes | By iKnowledge Team

Imagine this situation in a cricket match: It is the last over and your team needs 20 runs to win. At one end of the crease you have a specialist batsman who is a proven match winner and on the other end you have an all-rounder who can bat and bowl but is not as good a batsman as the other player. Who would you rather see at the striker’s end? Naturally, the specialist-match-winner batsman, who will get the job done.

This situation directly correlates to your choice when deciding between a ULIP and a term insurance policy. With so many insurance companies offering both these products, how do you decide which one is ideal for you? While both provide cover, it’s up to you to decide which instrument is more appropriate to fulfil your requirements.

What is the difference between ULIP and Term Life insurance?

ULIP is an integrated instrument that combines investment and insurance. A part of the premium paid for a ULIP is deducted as mortality charge i.e. insurance and another part is invested in funds. A ULIP’s purpose is wealth creation and increasing your capital.

A term insurance policy, on the other hand, is a pure protection plan. The premium paid, goes solely towards mortality charges. It has no element of investment. The fundamental purpose of term or life insurance is to provide your family the assurance of coverage of a fixed amount and safeguard their financial position in case of your death.

How Much Insurance Cover Should You Get?

The most important objective of a life insurance is to ensure that your family can live the same lifestyle after you as they do now. That’s why, you should get a cover that’s big enough to pay off outstanding dues, and generate an income for your family when you are not around.

Here are three thumb rules to keep in mind, when calculating how much insurance cover you need:

  • Annual gross earnings: Take your annual gross earning and multiply it by 12
  • Liabilities: Add the amounts of outstanding loans, and subtract any savings or liquefiable assets (cash, fixed deposits, gold) that you may have
  • Daily expenses: Add the amount of your monthly expenses to fulfil your day-to-day needs

The total of the above should help you arrive at your adequate insurance amount.

So, how do you decide which option is the way to go?

While a ULIP sounds like a great option, is it necessarily suitable for you? The answer to that depends entirely upon your need. If your purpose is insurance for life along with investment, choose ULIP. If your purpose is protection against mishaps in the future, choose a pure insurance policy as it is risk free and premium to be paid on it is also comparatively lower than a ULIP.

Bottom line

If your objective is to provide financial stability and security to your family, it’s advisable to opt for a term insurance. Since choosing the correct instrument is based solely on your expectations and prerequisites, a term insurance is the better choice if you don’t want your family to bear a financial crunch after your demise.

Advt. no.: IA/MAY 2018/3976


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