Life insurance and long-term investing serve different financial needs, but many people consider them together while planning for their future. With eligible individual life insurance policies becoming exempt from GST from 22 September 2025, the cost equation has also changed.

So, does zero GST make a ULIP more attractive than buying term insurance and investing separately through a mutual fund SIP?

There is no universal answer. The comparison depends on your need for life cover, investment goals, risk appetite, costs, flexibility and investment horizon.

What Changed With Zero GST on Life Insurance?

From 22 September 2025, eligible individual life insurance policies became exempt from GST. The exemption includes individual term insurance, ULIPs and endowment policies, while group life insurance continues to be treated differently.

This can reduce the tax-related cost associated with eligible individual life insurance. However, zero GST should not be confused with zero product charges.

A ULIP can still have charges such as fund management, mortality and policy administration charges, subject to the terms and conditions of the policy. Therefore, investors should evaluate the overall product structure and costs rather than making a decision based on GST alone.

What Is the Difference Between a ULIP and Term Insurance + SIP?

A Unit Linked Insurance Plan (ULIP) combines life insurance protection with market-linked investment within a single product. After applicable charges, the investment portion of the premium is allocated to the funds selected under the policy.

With Term Insurance + SIP, the two financial needs remain separate. You purchase a term insurance policy for life cover and separately invest in mutual funds through a Systematic Investment Plan.

Put simply:

  • ULIP: Combines life insurance and market-linked investment within a single insurance product.
  • Term + SIP: Uses two separate products, with term insurance providing life cover and a mutual fund SIP handling investment.

Both approaches can involve exposure to market risk on the investment side, and market-linked returns are not guaranteed.

ULIP vs Term + SIP: What Should You Compare?

Rather than asking which option is universally “better”, it is more useful to compare how they work against your financial requirements.

1. Life Insurance

A ULIP provides life insurance along with an investment component. Under the Term + SIP approach, the term insurance policy provides the life cover while the mutual fund investment remains separate.

Before choosing either approach, assess whether the life cover is adequate for your family's financial needs.

2. Investment Structure

ULIPs allow the policyholder to invest in available market-linked funds within the insurance policy.

With an SIP, investments are made separately into a selected mutual fund scheme. This means your investment decision is independent of your term insurance policy.

3. Costs

Compare the complete cost structure rather than looking at one charge in isolation.

For ULIPs, review applicable mortality, fund management, policy administration and other charges specified in the policy.

For mutual funds, examine the scheme's expense ratio and other applicable costs.

4. Liquidity and Flexibility

ULIPs generally have a five-year lock-in period. Investors should also understand fund-switching, partial withdrawal, surrender and other conditions applicable to the particular policy.

For mutual funds, liquidity and exit conditions depend on the particular scheme. An SIP itself is an investment method rather than a separate investment product.

5. Investment Risk

The value of investments in both ULIP funds and market-linked mutual funds can fluctuate based on market performance.

Past performance does not guarantee future returns, so investment decisions should be based on risk appetite, time horizon and financial objectives rather than past returns alone.

Does Zero GST Make ULIPs Better in 2026?

Not automatically.

The GST exemption reduces the tax burden associated with eligible individual life insurance, but it applies to term insurance as well as ULIPs.

Therefore, GST alone does not settle the ULIP vs Term + SIP decision.

An investor looking for life cover and market-linked investment within a single product may explore ULIP plans to understand available fund options, features, charges and policy conditions. Someone who wants to manage insurance and investment independently may prefer to evaluate term insurance and mutual funds separately.

The decision should ultimately consider:

  • required life cover;
  • investment horizon;
  • risk appetite;
  • product and investment costs;
  • liquidity requirements; and
  • long-term financial goals.

How Can You Plan for Long-Term Financial Goals?

Start by estimating the financial protection your family may require in your absence. Then identify long-term goals such as retirement, children's education or buying a home and estimate how much you may need to invest towards them.

You can explore different types of life insurance plans to understand how protection and investment-oriented insurance options differ. For retirement planning specifically, a retirement calculator can help estimate the corpus you may need based on your goal and time horizon.

Your financial needs are unlikely to remain unchanged. Review your insurance coverage and investments periodically as your income, liabilities, family responsibilities and financial goals evolve.

Conclusion

Zero GST has changed the cost environment for eligible individual life insurance policies, but it does not make either a ULIP or Term + SIP automatically superior.

A ULIP combines insurance and market-linked investment within one product, while Term + SIP separates life protection from investment. The more appropriate choice depends on your life cover requirement, risk appetite, investment horizon, liquidity needs and overall financial goals.

Compare the structure, costs, risks and benefits before making a long-term financial commitment.