Planning for retirement is no longer an option; it has become a necessity. With rising inflation and an increasing lifespan, building a retirement corpus early is important. Unit-Linked Insurance Plans and the National Pension System are two popular options that offer *tax-saving benefits under Section 80C of the Income Tax Act, 1961. Both plans serve different purposes and come with different features. This article explains the differences between ULIP vs NPS to help you understand which may align with your financial needs.
November 26, 2025 - 5 min. read
What is ULIP?
A unit-linked investment plan (ULIP) offers both life insurance coverage and an investment opportunity within a single plan. Your premium is divided into two parts: one part provides you life insurance coverage, and the second part is invested in market instruments. ULIPs give you options to invest in debt or equity instruments based on your risk tolerance. The investment component provides growth potential linked to the market and may be suitable for long-term wealth creation. You may switch funds according to market performance and risk tolerance during the policy term.
ULIPs have a lock-in period of five years. Additionally, the charges in ULIPs include premium allocation charges and fund management fees. Your returns depend on market performance, meaning your investment value can increase or decrease based on how the underlying funds perform.
What is NPS?
The National Pension System is a pension scheme of the Government of India. This scheme aims to provide retirement income to all the citizens of India, regulated by the Pension Fund Regulatory and Development Authority Pension company (PFRDA). It operates as a voluntary, long-term retirement savings plan designed to encourage systematic savings.
Employees of government, private, public, and unorganised sectors can join the NPS. But employees belonging to the armed forces cannot invest in this scheme. You can invest regularly throughout your employment period to build your retirement corpus. NPS is a market-linked scheme that, so far, has given returns on invested amounts between 9% and 12%.
There are two accounts under the scheme: one is Tier I, which is a non-withdrawable retirement account, while Tier II is an optional account with flexible withdrawal options. The investments in your NPS are managed professionally. Additionally, you can withdraw only a certain percentage of the corpus at retirement. You may use the remaining corpus to purchase an annuity that yields a monthly pension income. NPS allows partial withdrawals before you attain 60 years under specific conditions.
Difference Between ULIP and NPS
The following table highlights the difference between NPS vs ULIP.
Parameter |
ULIP |
NPS |
Purpose |
Insurance and investment |
Retirement planning |
Nature |
Combines life insurance with investment |
Government pension scheme |
Lock-in Period |
5 years |
Till the age of 60 years |
Minimum Contribution |
Premium amounts are generally fixed and higher |
Rs. 1,000 per year minimum |
Fund Management Charges |
Can be up to 1.35% |
Limited to 0.25% (plus recurring charges) |
Investment Options |
Debt, equity, or balanced funds as per risk profile |
Market-linked equity and debt mix |
Fund Switching |
Allowed based on market performance |
Asset allocation allowed within specified limits |
Withdrawals |
Withdrawal can be done upon the policyholder's death or ULIP maturity |
25% of the contribution can be withdrawn before the age of 60; 60% at retirement (40% for annuity) |
Life Cover |
Sum assured or fund value, whichever is higher |
Pension fund value paid to the nominee on death |
Risk Level |
High (equity-based) to Moderate (debt-based) |
Moderate to Low |
Returns |
Market-linked returns (varies) |
Market-linked returns (historically 9-12%) |
Regulatory Body |
Insurance Regulatory and Development Authority of India (IRDAI) |
Pension Fund Regulatory and Development Authority (PFRDA) |
Conclusion
ULIPs and the NPS help meet distinct objectives, so understanding what you need is vital. A ULIP allows you to grow your wealth while also providing life cover, offering both protection and investment benefits. Meanwhile, NPS is designed mainly for long-term retirement planning with a regulated, cost-efficient structure. Properly understanding how each plan works, its benefits, and available withdrawal options can help you decide which one fits your long-term financial needs.
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