Term Insurance vs. Life Insurance: Benefits Compared

Term Insurance Vs. Life Insurance 

In term insurance, the insurance company is liable to pay the amount of death benefit to the nominee or the beneficiary in case of the policyholder’s unfortunate death during the policy tenure. In case the life assured survives the policy term. No maturity benefit will be provided. On the other hand, Whole life insurance plans provide double benefits of protection and investment for the whole life of the policyholder. These plans generally come with an upper age limit of 100 years. The whole life plan also provides the benefit of cash accumulation during the whole term of the policy. 

Let’s take a look at term insurance and life insurance benefits to understand whether you should consider buying term insurance or a traditional life insurance policy.

1. Death Benefit-

   The most common difference between term insurance and traditional life insurance plan is that a term insurance plan only provides a death benefit in case of demise of the insured within the term period, whereas a life insurance policy offers both death and maturity benefit to the insured. The amount provided as the death benefit in term insurance plans is much higher than the maturity benefit offered by life insurance policies. Even though most insurance buyers consider investing in life insurance policies to avail the dual benefit of life protection along with returns on the investment. It is advisable to have at least one term insurance plan as it provides a higher death benefit in the minimum premium amount.

   Term insurance Add-ons

   Cover against
   critical illnesses

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   Extra payout on
   accidental death

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   Cover for your
   spouse

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2. Risk covered Vs. Savings-

    A term insurance plan covers the insured by providing a death benefit to the family of the insured in case of their demise. However, term plans do not offer any survival benefits or maturity returns like life insurance plans. So, one can consider investing in term insurance if he/she only wants to cover death risk and cannot afford to pay high premiums. However, if one wants to create an investment corpus along with a life cover, then he/she should consider investing in a traditional life insurance policy.

3. Flexibility-

   Surrendering a term insurance policy is much simpler than surrendering a life insurance policy. In a term insurance plan, if the insured stops paying the premium, the benefits of the policy terminate, and the policy lapses. However, in life insurance policies, the maturity benefit is provided only if the insured completes the entire tenure of the policy. If the insured surrenders, he/she will not be able to recover the entire saving portion of the policy, as only the premium amount is paid back to the insured, that too, after the certain deductions. Moreover, most of the term insurance plans are renewable and offer an option to convert the policy into an endowment plan for the same sum assured with an increase in the premium.

4. Tenure – 

   Term Insurance Plans offer coverage for a fixed duration, such as 5, 10, 15, or 30 years. Whereas whole life insurance plans come with flexible duration and are generally applicable till the life assured reaches 100 years of age. 

5. Premium Amount-

   If an individual wants higher coverage under a life insurance policy, then he/she will have to pay a higher premium amount. Thus, due to a high premium, most of the insurance buyers fail to avail sufficient coverage. Moreover, life insurance policies generally offer low returns, between 5%-7%, which is further reduced in case the policyholder surrenders the policy. Also, the costs related to administration reduce the returns. On the contrary, term insurance plans are much more affordable and provide higher coverage at a minimal cost.

   For example: If a 30 years old person wants to buy term insurance of Rs. 10,00,000 assured for a tenure of 20 years, then he/she will have to pay an annual premium of Rs. 3000. On the other hand, a without-profit endowment policy with the same death benefit will have an annual premium of Rs.30,000 and a with-profit endowment policy will cost about Rs.50,000 per annum.

   Term insurance plans are beneficial for those individuals who can’t provide financial security to their families or don’t have a stable and secure source of income.

6. Tax Benefit-

   It is often misunderstood that an individual can avail more tax benefits under section 80C of the Income Tax Act against the premium paid for a life insurance policy due to higher premiums. Moreover, it is assumed that the maturity benefit is also tax-free.

   However, it is important to note that the premium paid towards the term insurance plan is not only minimal but is also eligible for tax deductions under section 80C of the Income Tax Act. So, if one wants to invest in an insurance plan to gain a tax benefit, then he/she can consider investing in a term plan as the difference in premium between both the plans can be invested in other tax-saving schemes like ELSS, PPF, etc.

Let’s understand the difference between the two with the help of a table: 

Wrapping It Up!

Both life insurance and term insurance plans have their benefits and relevance. Term insurance plans are must-have plans for everyone as they provide financial protection against premature death. By knowing the difference between term and life insurance plans, one should always choose the right plan for themselves and their loved ones. 

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