Difference Between Term Insurance and Life Insurance

Term Insurance vs Life Insurance: Overview Of Differences

Let’s understand the difference between term insurance and life insurance with the help of a table:

Note: You should understand what is term insurance first, and then buy a term plan to protect your loved ones.

Term Plans

₹1
Crore

Life Cover

@ Starting from ₹ 16/day⁺

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₹50
LAKH

Life Cover

@ Starting from ₹ 8/day⁺

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₹75
LAKH

Life Cover

@ Starting from ₹ 12/day⁺

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Understanding Term Insurance vs Life Insurance Plan

Before we look at term insurance vs life insurance, let us understand the difference between term insurance and life insurance and its meaning:

Term Insurance

Term insurance is a type of life insurance policy that offers pure risk protection to the policyholder. This means these plans provide a death benefit to the family of the policyholder in case of his/her unfortunate death. These plans offer comprehensive coverage over a variety of eventualities like untimely death, critical illnesses, and disabilities. One of the primary difference between term insurance and life insurance is that term insurance plans are highly affordable and provide large life cover for a long policy term, whereas life insurance plans can be slightly expensive for a lower sum assured. If you want to receive an amount at the end of the policy term, you can opt for term return of premium plans (TROP).

Life Insurance

Life insurance plans, on the other hand, provide death, maturity, and survival benefits. These plans provide security to your loved ones in case of an eventuality and the chance to grow your wealth over time. These plans can help you fulfil your lifelong goals and take care of your post-retirement life. One main difference between term insurance and life insurance is that term insurance provides pure risk protection. In contrast, life insurance plans offer wealth creation benefits that may be in the form of bonuses or market-linked returns. Life insurance plans usually have slightly higher premium rates than term insurance plans but offer the same long-term protection as term plans.

How to Choose Between Term Insurance and Other Life Insurance Plans?

Here are some simple questions to help you decide whether you should opt for a term plan or a different type of life insurance plan:

Term Insurance vs Life Insurance

In term insurance, the insurance company is liable to pay the death benefit to the nominee or the beneficiary in case of the policyholder’s unfortunate death during the policy tenure. No maturity benefit will be provided if the life assured survives the policy term. On the other hand, between term insurance vs life insurance, life insurance plans provide double protection and investment benefits for a specific term, which can extend for the whole life.

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

1. Cover Amount-

   The most common difference between term insurance and life insurance plan is that a term insurance plan only provides a death benefit in case of demise of the life assured within the term period, whereas a life insurance policy offers both death and maturity benefit to the life assured.

2. Premium Amount-

   Term insurance vs life insurance: the difference is the premium amounts of term insurance are the most affordable type of life insurance and offer large coverage at low premium rates. The earlier you buy term plan, the lower the premium rates will be. On the other hand, life insurance premiums are slightly higher than term insurance.

   For example, If a 30-year-old Ram wants to buy term insurance of Rs. 1 Crore for a tenure of 30 years, he will have to pay just Rs. 818/- per month. On the other hand, a 100% guaranteed endowment policy with the same return cover will have Rs. 20,902 as a monthly premium. You can calculate the premiums you would need to pay using the term insurance premium calculator from the comfort of your home.

   Between term insurance vs life insurance, term 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.

3. Maturity Benefits

   The main difference between term insurance and life insurance is that, unlike life insurance plans, there are generally no maturity benefits offered in term insurance. However, there are a few types of term insurance plans, like term return of premium plans and 100% refund of premium plans that return the premiums paid at the end of the policy term. Consecutively, most life insurance policies offer maturity benefits on outliving the policy term. You can go through the list of different life insurance vs term insurance plans available in India and purchase the plan that best fits your needs.

4. Risk covered Vs. Savings-

     Between term insurance vs life insurance, a term insurance plan offers a death benefit to the family in case of the policyholder’s untimely demise. However, term plans do not offer any survival benefits or maturity returns like life insurance plans. So, one can consider purchasing 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.

5. Flexibility-

   Surrendering a term insurance policy is much simpler than surrendering a life insurance policy. In a term insurance plan, if the assured 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 life assured completes the entire tenure of the policy. If the assured 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 assured, that too, after the certain deductions.

6. Tenure – 

   Term Insurance Plans offer coverage for a fixed duration, such as 5, 10, 15, or 30 years, which you can select as per your requirements. Whereas between life insurance vs term insurance, whole life insurance plans come with flexible duration, which you can extend to cover till 100 years of age.

7. Additional Benefits and Bonuses

   One of the other main differences between term insurance vs life insurance is that there are no bonuses like terminal, revisionary, loyalty, or other accrued bonuses in term insurance plans. In contrast, these additional bonuses are present in life insurance plans as per the policy details. However, additional benefits like rider benefits and life-stage benefits can be available in both term insurance vs life insurance as per the T&Cs of the policy.

8. Tax Benefit-

   You can claim tax benefits with both life insurance vs term insurance under sections 80C, 80D, and 10(10D) of the Income Tax Act of 1961. Sections 80C and 80D are applicable to the premium paid, whereas section 10(10D) provides tax benefits on the death and maturity benefits.

9. Surrender and Paid up

   Buying term insurance means surrendering your whole life policy. No surrender value or paid-up is acquired. In case of life insurance plans, if premium rates are discontinued after a specific number of years, the plan attains a paid-up value. If plan is surrendered after that, a surrender amount is paid.

Note: Check out the best term insurance plan in India and choose one that suits your requirements.

Wrapping It Up!

When comparing the difference between term insurance and life insurance, both types of 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 insurance and life insurance plans, one can choose the most suitable plan for themselves and their loved ones.

In simple words, term insurance vs life insurance can easily be understood as the term plan offers coverage for a specific period and the life insurance offers coverage for whole life.

Note: You should also check the benefits of term life insurance if you are planning to purchase the term insurance plan.

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