Agents love ULIPs because commissions love ULIPs. You need two jobs done well: (1) pay dependents if you die, (2) grow money if you live. A Unit Linked Insurance Plan tries to do both in one glossy brochure — and usually does both worse than buying pure term cover and investing the leftover premium in a direct index SIP.
This is not anti-insurance. Term insurance is one of the highest-ROI products a 23-year-old with dependents (or co-signed debt) can buy. The problem is the mashup: high front-loaded charges, 5-year lock-in, opaque fund menus, and a sales script that says “returns better than FD with life cover.” Walk when you hear that sentence.
What each product actually is
Term insurance is pure risk cover. You pay a small premium for a large sum assured. If you die during the term, nominees get the cover. If you live, you get nothing back — that is the point. You are not buying an “investment”; you are buying a financial firewall for people who depend on your income.
A ULIP splits your premium between life cover and market-linked funds (equity/debt). Units go up and down with markets. Insurers deduct premium allocation, policy administration, fund management, and mortality charges — especially heavy in early years. You are locked in for five years. Surrender early and you often leave money on the table.
ULIP vs term: side-by-side
Typical Gen Z comparison — exact charges vary by insurer; read the benefit illustration
| Factor | Pure term | ULIP |
|---|---|---|
| Job | Pay nominees if you die | Thin cover + invest rest |
| Cost for ₹1 Cr cover (healthy 25yo) | Often ₹8–15k/year | Much higher premium for same cover |
| Investment quality | None — by design | Funds exist, but charges eat early years |
| Lock-in | None beyond paying premium | 5 years; surrender hurts |
| Clarity | Easy to compare quotes | Charges + fund menu = fog |
| Exit | Stop paying, cover stops | Market value minus charges / lock-in rules |
| Best paired with | Direct index SIP | Usually nothing — just skip |
The “buy term, invest the rest” math
Say an agent pushes a ULIP at ₹50,000/year for “cover + wealth.” A comparable ₹1 crore term plan might cost ~₹10–12k/year at age 25 (health and smoker status matter). The remaining ₹38–40k/year — about ₹3,200–3,300/month — into a Nifty 50 direct index SIP for 20 years at a rough 12% planning rate builds serious corpus. Same outgo, clearer cover, lower drag. That is the whole argument.
- Term: know exact sum assured and premium in one quote sheet.
- SIP: know expense ratio, track record of the index, and that you can pause if income dies.
- ULIP: know that year-1–5 charges and lock-in are features for the seller, not gifts to you.
When people get sold ULIPs anyway
- “Tax saving under 80C” — you can use EPF, PPF, or ELSS for 80C without mixing insurance. New regime often makes the pitch irrelevant.
- “Guaranteed loyalty additions” — marketing language; run net returns after all charges.
- Parents/uncles who bought endowment plans in the 90s and think every policy is an investment.
- Bank RM with a target — smile, take the brochure home, buy term online later.
Who actually needs term cover
If nobody depends on your income and you have no co-signed loans, you can wait. The day parents, a partner, or a home loan hangs on your salary, buy term. Rough starting cover: 10–15× annual income plus outstanding loans. Review when you marry, have kids, or take a bigger EMI. Skip ULIPs, endowment, and “money-back” plans sold as investments.
If you already own a ULIP
- 1.Download the policy document and latest statement — note charges and fund value.
- 2.Check if you are past the 5-year lock-in.
- 3.Compare remaining life cover vs a fresh term quote for the same cover.
- 4.If lock-in is over and the ULIP is underperforming after charges, consider surrender and redirect to term + SIP — after checking tax on gains.
- 5.Do not take a new ULIP “to average” the old one. That is how holes get dug deeper.
The takeaway
If anyone says “returns better than FD with life cover,” walk. That sentence has ended more portfolios than bear markets. Buy pure term. Invest the difference in a direct index SIP.
Quick decision rule
Need protection → term. Need growth → mutual fund SIP. Need both → buy both separately. Need a product that pays the agent more than it pays you → ULIP. Gen Z money is simple when you refuse mashups.