Term insurance is gaining popularity in India over ULIPs and traditional plans. Learn why it’s affordable, simple, and the smartest financial protection.
Term insurance India
Picking the right life insurance is super important for planning your finances, especially here in India, where taking care of your family's future is a big deal. The world of life insurance is changing fast. For a while, ULIP plans and the usual life insurance plans were what most Indians went for. But now, term insurance is becoming more popular because it's easy to understand, honest, and doesn't cost a lot. Let's look at why ULIP and traditional life insurance plans aren't as popular as term insurance in India these days.
ULIP plans
ULIP plans are unique because they combine investment and insurance. A portion of your premium goes towards life insurance cover, while the remainder is invested in equity, debt, or balanced funds. The performance, and returns, depend on the investment chosen. Although ULIPs give you a chance to grow your wealth, they also carry market risks.
Traditional life insurance plans
Traditional life insurance usually means you're getting an endowment or whole life policy. These plans give you a set amount of money back, and sometimes a bit extra as a bonus. Just so you know, you won't make as much money as you might with investments that are tied to the market. The good thing is your money is safe. The not-so-good things are that you usually pay a lot in premiums, and it can be hard to understand exactly what you're getting. Many providers, including Bajaj Life Insurance, continue to offer traditional policy options as part of their product mix, though customer preferences are gradually shifting toward simpler and more affordable alternatives like term insurance.
Term insurance
Term insurance is pure protection. You pay a premium, and your family receives a large sum assured in case of your untimely demise during the policy tenure. There is no maturity value if you survive the policy term. Term plans are straightforward, cost-efficient, and transparent.
Reasons why ULIP plans are losing appeal
High charges and low transparency
ULIP plans come with a bunch of charges such as premium allocation, fund management, mortality, and surrender fees. These fees can cut into what you earn, especially at the start. A typical ULIP might take out about 2-4% of your premium each year for these charges, which really affects how much you're investing.
Market risks
ULIP plans have an investment part, so they can be affected by the market's ups and downs. Lots of Indian investors who want life insurance would rather have returns they can count on instead of investment-based profits that are not guaranteed, mainly when it comes to keeping their family secure in the long run.
Complex product structure
The dual nature of ULIP plans can confuse even savvy investors. It is challenging to evaluate the actual returns versus pure mutual funds or insurance options. Policyholders sometimes realise much later that the life cover offered by ULIP plans is inadequate for their family’s future needs.
Regulatory impact
SEBI and IRDAI have made efforts to improve transparency, but most buyers still find ULIP documentation and disclosure complex. This lack of clarity makes many potential buyers wary.
Shortcomings of traditional life insurance plans
Low returns
Traditional endowment and whole life insurance plans offer returns in the range of 4% to 6% per annum. This is much lower compared to inflation rates and alternative investment options like PPF or mutual funds.
Higher premiums
Premiums for traditional life insurance plans are much higher compared to term insurance for the same sum assured. For example, a 30-year-old non-smoker may pay around Rs. 50,000 per annum for a Rs. 1 crore cover in an endowment plan, but only Rs. 10,000 per annum for a term plan of the same amount.
Insufficient coverage
Due to the high premiums, most people can afford only a limited sum assured under traditional life insurance plans. This often leaves families underinsured and financially vulnerable if the worst happens.
Lack of flexibility
Traditional policies have limited flexibility in terms of premium payment and tenure. Exiting these plans early leads to heavy surrender penalties and loss of benefits.
The term insurance advantage
Affordability
Term insurance is the most cost-effective way to purchase life cover. Premiums are significantly lower compared to ULIP or traditional life insurance plans. This allows policyholders to opt for higher protection at a fraction of the cost.
Simplicity and clarity
Term plans are easy to understand. There are no hidden charges or investment-related risks, making them an ideal choice for customers with little financial expertise.
Adequate coverage
With lower premiums, it becomes possible to choose a realistic sum assured in line with family needs and financial responsibilities. This is crucial, as most experts recommend a cover of 10-15 times your annual income for sufficient protection.
No link to investments
By separating insurance from investments, term plans ensure there is no compromise on either aspect. Investors can choose other dedicated options for wealth creation such as mutual funds, PPF, or fixed deposits.
Riders and customisation
Modern term plans offer useful add-ons or riders for accidental death, critical illness, waiver of premium, and more. This further enhances the policy’s comprehensiveness.
Changing customer behaviour and digital transformation
Improved financial literacy
India is witnessing a surge in financial awareness. Young earners are more informed about product features, costs, and benefits. This is driving a clear preference for products like term insurance that offer transparency and real value.
Regulatory support
IRDAI has promoted customer-friendly norms, simplified disclosure formats and faster claim settlements. These initiatives have helped boost trust in term insurance over complex combined products such as ULIP plans.
Impact on insurance companies and product innovation
Focus on term plans
Insurers are launching more term life insurance plans with flexible premium payment options, return of premium variants, and value-added features. This has widened choices for buyers across different income segments.
Digital onboarding
The adoption of e-KYC, online verification, and instant policy issuance has made term insurance easily accessible, breaking traditional barriers to insurance coverage in rural and urban India alike.
Tax benefits and financial planning considerations
Section 80C and 10(10D)
All life insurance premiums up to Rs. 1.5 lakh qualify for deduction under Section 80C of the Income Tax Act, be it for ULIP plans, traditional life insurance plans, or term insurance. The death benefit and maturity amount (except for some ULIPs) is tax-free under Section 10(10D).
Strategic separation
Financial planners suggest keeping your life cover separate from your investments. Get term insurance for protection, and put your savings in the market or bonds so you can get better returns and easy access to your money.
Conclusion
To sum it up, term insurance is becoming more popular in India, giving ULIPs and traditional life insurance a run for their money. Nowadays, people in India who know their finances want plans that give them the most protection for the least amount of money, and they want everything to be clear and upfront. Term insurance meets these demands by providing straightforward, high-value coverage without unnecessary investment risks or complexities. For smart financial protection, consider analysing your needs and opting for life insurance plans that prioritise your family’s security and peace of mind.
If you are evaluating your next insurance purchase, remember that separating investment from insurance not only improves returns but also ensures reliable protection. The shift from ULIP plans and traditional life insurance plans to term insurance is both practical and prudent for the Indian family’s financial future.
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