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Difference Between Term Insurance and Life Insurance

Life insurance plans help you create wealth, protect your family for the entire policy term, and save on your yearly taxes. Term insurance plans offer highly affordable premiums compared to life insurance plans and provide financial security to the policyholder's family in his/her unfortunate death.The difference between term insurance and life insurance is that term insurance only offers death and tax-saving benefits, whereas life insurance provides death, maturity, survival, and tax-saving benefits.

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Let us look at the difference between term and life insurance plans in India 2024.

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:

Parameters Life Insurance Term Insurance
Premium Premiums are higher than term plans Low premium rates
Death Benefit Payable for all policies Payable
Maturity Benefit Payable under most of the policies Generally, not payable
Coverage Benefit is payable on death and survival of the policy term Benefit is payable only on death during the policy term
Policy Tenure The tenure ranges from 5-40 years The tenure ranges from 5 -35 years
Flexibility Flexible Not that flexible
Loan Benefit Loan benefit is available in most life insurance policies Loan benefit is not available
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

Note: Know what is term insurance first and then buy a term plan for your loved ones.

Understanding Term Insurance and 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. Term insurance plans are highly affordable and provide large life cover for a long policy term. 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. These plans have slightly higher premium rates compared to term insurance plans but offer the same long-term protection as term plans.

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.

FAQs

  • Which one is better: term insurance vs life insurance?

    Ans: While comparing life insurance vs term insurance, 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 insurance vs life insurance plans have their own set of benefits and features. Individuals should make the right selection between these two by comparing their features and choosing the one that best suits their needs.
  • What is the difference between term insurance and life insurance?

    Type of Benefit  Term Insurance  Life Insurance 
    Coverage  Provide death benefit and return of premiums as per the T&Cs Provide death benefit and maturity benefit as per the T&Cs
    Tenure  5 years to 35/40 years  5 years to whole life
    Premium  Low premium rates  Comparatively higher than term plans 
    Death Benefit  Payable if the policyholder passes away within the policy term Payable if the policyholder outlives or dies within the policy term
  • Is it good to buy term insurance?

    Ans: Yes, it is good to purchase term insurance as it provides a large coverage at low premium rates. A term insurance plan will help your loved ones meet their daily expenses and long-term financial objectives. When comparing between term insurance vs life insurance policies, a term plan is much more affordable and offers comprehensive benefits.
  • Which is better: Term Insurance vs whole life insurance?

    Ans. Term insurance and whole life insurance are both types of life insurance offering slightly different benefits. You can purchase a term plan for a limited policy term, whereas whole life insurance offers coverage for the policyholder’s whole life i.e., till 99 or 100 years of age. Also whole life insurance plans also provide maturity benefits at the end of the policy term. However, term life insurance plans are slightly more affordable than whole life insurance policies.
  • Can I get my money back with term insurance plans?

    Ans. Yes, there are a few types of term insurance plans like the term return of premiums and 100% refund at no cost plans that return the premiums paid during the policy at the end of the policy. You can check out each plan's policy documents to better understand the benefits offered under each plan.
  • What is the best age to buy term insurance vs life insurance?

    Ans. The best age to buy term insurance vs life insurance is as early as possible. Both life insurance vs term insurance premium rates depend on age and existing health conditions. Thus, the earlier you buy any of the above plans, the lower the premium rates will be, as there is a better chance of you getting lower premiums due to your young age and healthy medical conditions.
  • What happens if I stop paying premiums for life insurance vs term insurance?

    Ans. One of the key difference between term insurance vs life insurance is that term insurance doesn’t attain cash value over time. Thus, in case you fail to pay the premiums for a term plan, the plan will lapse, and in case of your unfortunate death during the policy term, your family will receive no death benefits. Alternatively, life insurance plans offer cash value. Thus if you fail to pay the premiums after a certain period, the policy will convert into a reduced paid-up policy and continue its coverage.
  • Term insurance vs life insurance: Which is better?

    Ans. Before choosing which is better: term or life insurance, you need to understand, what is term insurance and life insurance. Between term insurance vs life insurance, both plans have their own benefits. You should weigh the pros and cons of both types of life insurance before buying the most suitable one.
  • Which one is better, term insurance or health insurance?

    Ans. The main objective of term insurance is to offer financial support to your family members after your demise. This provides no benefit during the span of your life. On the contrary, health insurance provides financial support to you in case of any medical emergency with large expenses.

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