In India, term insurance, and Endowment life insurance and ULIP (Unit linked (life) insurance policy) are often used without much knowledge of the difference. Many people are misled with the idea 'that getting something in return at the end of policy is good' and hence 'life insurance is good'. Under this guise, a carrot is dangled in front of the unsuspecting customer who goes for a ULIP or a Life insurance policy and ends up paying a huge amount of premium every year for a return at the end of the policy
Term Insurance is taken for a term (period) during which time, if the policyholder dies, unfortunately, the nominated member/s get the pre-set amount. If the policyholder outlives the term then nothing is paid out to him or the family.
The advantages are
1. lesser premium compared to other part return or ULIP policies
2. can be taken online
3. premium fixed amount every year or 6 monthly for the full term taken (20yrs,30 yrs,40 yrs)
The disadvantages are
1. apparent absence of any lump sum payment at the end if the policyholder survives.
Many financial experts advise selecting a term policy as in the end money is save by the policyholder
1. comparatively lesser premium
2. premium fixed at the point of entry ( Eg Rs 20,000.00 in 2017 will be the same Rs 20,000.00 in 2037)
3. ULIPS & Endowment plan promised returns have relatively low value ( Eg 10 lakhs being paid out in 2017 will have a higher purchasing power compared to the same 10 lakhs paid out in 2037). It like what our parents could by for Rs.100.00 and what we can now buy with the same Rs 100.00
Lastly the key similarities: - all three payouts are given to nominee in the event of death of the policyholder
The key differences
Term Insurance: Life is insured, nothing is paid IF the policyholder lives
ULIP: life is insured, something (depending on the market performance) is paid out at the end of the term if the policy holder lives.
Endowment Policy: life is insured, a fixed or a guaranteed amount is paid out at the end of the term if the policyholder lives.
It's worthwhile discussion with a financial advisor and checking the claims-settlement ratio of a particular policy or option you choose