What is the Difference Between Life Insurance & Term Insurance?
Understanding the difference between term insurance and life insurance is crucial when choosing the right coverage for your needs. By knowing the key distinctions, you can make informed decisions based on your financial goals, budget, and long-term needs. This can ensure the right balance of protection and investment for your family’s future. ...read more
Term insurance provides financial protection for a specific period, offering a death benefit if the policyholder passes away during the term. In contrast, life insurance, particularly the whole-life type, offers lifelong coverage and may include a savings component that builds cash value over time.
Difference Between Term Insurance and Life Insurance
Before we get into the difference between the two types of insurance plans, it is important to understand what term insurance and life insurance are in general.
A term policy provides pure life cover that financially secures the life assured’s beneficiary if the former passes away during the policy term. The sum assured for this plan is usually higher than other types of life plans.
A life policy, on the other hand, is an umbrella term that also includes term plans. It offers a financial cushion to the life assured’s family in case of their demise. Several types of life plans enable investment in market-linked securities.
We will now go through the points of difference between term insurance and life insurance mentioned below —
Point of Difference
Term Insurance
Life Insurance
Scope of Coverage
Limited as it offers only death benefit
Offers death and assured maturity benefits
Premium Costs
Affordable as it offers only death benefit
Higher rates due to more benefits than death benefits
Policy Tenure
Usually ranges from 5 years to 35 years
Lifetime coverage also available
Flexibility
Less flexible — no scope of withdrawal throughout the policy tenure
Facilities like loan facilities, partial withdrawals and more available
Option to Surrender the Policy
Yes, although no surrender benefit paid
Yes, but you need to complete the maturity period for any benefits
Life Cover
Pure life cover
Portion of the premium assigned to investment securities — remaining part directed towards life insurance
Maturity Benefits
None
Assured maturity benefits along with bonus (if applicable) to the life assured
Policy Loan Facility
None
Some life plans provide loan facilities against the policy
Term Insurance vs Life Insurance: Which is Better?
To decide between term insurance and life insurance, you can consider the following —
Evaluate your financial goals and liabilities like education expenses, income replacement, outstanding debts, and more.
Find out how much coverage you need and how long it should last based on your financial goals and responsibilities.
Check your budget to ensure you can easily afford the premiums.
Think about how whole life insurance fits into your long-term savings and investment plans.
Seek advice from a reliable insurance advisor or financial planner to make the right choice.
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