Finance · Free tool
ULIP vs Term + MF
ULIPs bundle insurance + investment but charge 2-3% annually. Splitting into pure term insurance (cheap) + an index MF (low expense) usually wins over 20 years.
Post all charges, ~8-10% typical.
Equivalent term cover; rest invested in MF.
Index fund: ~12% historical.
ULIP corpus
Term + MF corpus
Term + MF wins by ₹26,03,330 over 20 years.
How the comparison works
A ULIP bundles life cover with an equity/debt fund and deducts five layers of charges: premium allocation (up to 6% early years), policy admin (₹50–500/month), fund management (~1.35%), mortality (rises with age), and GST on each. We model a 20-year ULIP at a blended 7–9% net return. The alternative buys a pure term plan for the same sum assured and channels the saved premium into a Nifty 50 index fund at the historical 12% CAGR.
Worked example
A 30-year-old paying ₹1 lakh/year for 20 years into a ULIP with ₹1 crore cover typically ends with around ₹52–58 lakh corpus. Splitting the same ₹1 lakh — ₹12,000 to a term plan and ₹88,000/year SIP into UTI Nifty 50 Index Fund — produces a corpus of approximately ₹78–82 lakh at 12% CAGR, plus the same ₹1 crore life cover. That is roughly a ₹25 lakh head start, mostly from skipping ULIP charges.
When to use this
- A bank RM is pitching a ULIP as “tax-saving + insurance”
- You already hold a ULIP and are debating surrender vs paid-up
- Comparing maturity numbers for the FY 2025-26 ₹2.5 lakh ULIP premium tax cap
- Building a Section 80C strategy that does not lock returns at single-digit yields
Pair this with the term insurance cover calculator to size the protection leg, and the SIP calculator to project the investing leg independently.
FAQ
Why does Term + MF usually beat ULIP?
ULIPs charge 2-3% annually plus 5-9% allocation charges in years 1-5. A direct index MF charges 0.1-0.5% expense ratio. Over 20 years, the gap compounds to 30-50% of corpus.
Are ULIP gains tax-free?
Pre-Budget 2021 ULIPs (premium ≤ 10% of SA): yes, fully tax-free. Post-Budget 2021 with premium > ₹2.5L/yr: gains taxed like equity (LTCG 12.5%, STCG 20%).
Should I surrender my existing ULIP?
After 5 years (lock-in), yes if returns are clearly underperforming index by 3%+ annually. Switch the corpus to direct index MF and buy term insurance separately.