Term Insurance vs. Life Insurance: Benefits Compared

Term insurance is one of the purest forms of life insurance, which offers financial protection to your family in the form of a life for a fixed duration. With an evolving market of life insurance, companies are offering several plans ranging from protection to wealth creation. All these plans offer financial security however the essence of providing this safety is different. Term insurance is the most affordable type of life insurance to protect your loved one’s future that provides a large life cover for a small premium. There are a number of parameters that one needs to take into consideration before choosing the right insurance policy. Read on to know more about their distinct benefits so that you can select the best fit.

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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.

  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.

    Best term Insurance Plans in India
  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: 

Parameters  Life Insurance  Term Insurance 
Tenure  The tenure ranges from 5-30 years  The tenure ranges from 10-35 years 
Coverage  In this, both premature death and survival till the policy term is covered.  Premature death is covered only
Premium The rates of premiums are higher than term insurance plans  Low premium rates 
Death Benefit  Payable for all policies Payable
Flexibility  Flexible  Not that flexible 
Maturity Benefit  Payable under most of the policies  Generally, not payable 
Surrender value/Paid-up value  In case of discontinuation of premium after a certain number of years, the plan attains a paid-up value and if the policy is surrendered after that, then a surrender value is payable  No Surrender value or attained paid-up value

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. 

FAQs

  • Which one is better term or life insurance?

    Ans: The amount provided as the death payout in term insurance plans is much higher as compared to the maturity payout offered under life insurance plans. It is recommended to have at least one term plan as it provides high coverage at low premium rates. Both term and life insurance plans have their own set of benefits and features. Individuals should make the right selection between these two by comparing its features and choosing the one that best suits their needs.
  • What is the difference between term and life insurance?

    Type of Benefit  Term Insurance  Life Insurance 
    Coverage  Term insurance plans provide coverage for policyholder’s premature death within the fixed tenure  Life insurance plans provide coverage on policy’s maturity 
    Tenure  10 years to 35/40 years  5 to 30 years 
    Premium  Low premium rates  Comparatively higher than term plans 
    Death Benefit  Payable, if the policyholder dies till policy’s maturity  Payable, if the policyholder is alive or demise on policy’s maturity 
  • What are the benefits of term insurance?

    Ans: Term Insurance plans provide financial protection and security to the beneficiary’s family in case of death of the life assured and also get optional cover for accidental death or critical illness. Low premium rates, life cover with financial security, and tax savings benefits are the important features of term insurance plans.
  • What is meant by term insurance?

    Ans: Term insurance plan is the simplest and purest form of life insurance product, wherein the insurance provider offers coverage for a definite ‘tenure’ in return for a specific premium paid over a period. A death benefit is paid to the insured’s family, if the life insured dies during the policy tenure stated in the policy.
  • What is the maximum age for term insurance?

    Ans: The maximum age for term insurance is limited to 65 years
  • Is it good to invest in term insurance?

    Ans: A term insurance plan will help your loved ones to meet their daily expenses and accomplish the long-tenure financial objectives. It is good to invest in term insurance as it provides large coverage at low premium rates. When compared to other types of life insurance policies, a term plan is much beneficial.

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