When it comes to insurance on life, it is broadly categorized as life insurance and term insurance. Both are different and serve different purposes as well. The investment purpose or the investor’s intention, is also separate in both cases. Before we analyze the difference between term and life insurance, we must know what they are.
Term insurance
Term insurance is a kind of life insurance that provides pure risk protection to the policyholder. It gives the death benefit to the beneficiary in case of the policyholder’s unfortunate demise. Term plans provide complete coverage on various eventualities like death, critical illness, and disability of the policyholder. These plans are reasonable and offer a large life cover for the long term. The plan usually attains maturity if the policyholder outstays the policy term, but no benefit is paid to him after the tenure; if you choose the term return for premium plans (TROP), you will receive the amount at the end of the tenure.
Life insurance
Unlike term insurance, life insurance provides extended coverage to the policyholder and his dependent. It offers death, maturity, and survival benefits. These plans not only cover the risk of giving security to your family in case of eventuality but also provide an opportunity to grow your wealth over time. Though there are various life insurance plans, out of which a whole life insurance policy serves coverage through the entire duration of the policyholder’s life. In contrast, other life insurance plans serve a limited purpose and coverage. Life insurance usually comes with a dual benefit that combines death benefits with savings factor. It splits the premium paid by the policyholder into two parts, out of which one goes for the death benefit and the other for wealth creation for the future. You can save this second part for future contingencies or your child’s education or marriage. You can also keep it for your post-retirement period.
Now let us analyze the actual difference between term insurance and life insurance through a tabular format.
Features-based difference between term and life insurance
| Features | Term insurance plan | Life insurance plan |
| Coverage | A basic term plan avails death benefits to the beneficiary of the insured | It covers death as well as maturity benefits to the insured and his family |
| Premium | The premium cost is very nominal and easily affordable | Premium cost is higher as compared to term life insurance |
| Death benefit | Offers death benefits to the beneficiary | It also offers death benefits to the beneficiary |
| Flexibility | Rider benefits provide flexibility by opting for and availing critical illness cover, disability and accidental death cover, income return benefit, return of the premium cover(*Note – The premium for opting for the rider is higher than for the basic term) | Life insurance offers considerable flexibility to the policyholder. The insured can make partial withdrawal, take loan on the plan and pay additional premium for various such extra benefits. |
| Term period | The span of the term plan ranges between 10 years to 35 years. | The whole life insurance gives coverage to the entire life duration of the policyholder, while the span for other plans ranges from 5 years to 30 years. |
| Maturity benefit | The basic term plan offers no benefit on maturity if the insured outstays the term, although the riders like the return of the premium option, help one get the premium back if the insured survives the term. | Life insurance offers maturity benefits to the policyholder. |
Benefits-based difference between term insurance and life insurance
| Particular | Term insurance | Life insurance |
| Risk coverage against saving | Term insurance covers the financial future of your dependents in your absence, but usually, it offers no benefit if the insured survives the policy term. | Life insurance covers the financial future of your dependents in your absence and also supports wealth formation and savings. |
| Surrendering the policy | It is easy to surrender the term insurance. The Insured needs to stop paying the premium, and it ultimately stops. | Surrendering life insurance is not that easy, as the insured must pay off the premiums to achieve the maturity benefits. The insured might get the paid premium after certain deductions. |
| Renewal | Term insurance is a renewable plan, and it could be easily convertible to an endowment plan. | Life insurance can be renewed after its maturity. |
| Tax benefit | According to the old tax regime, the premium paid towards term insurance is tax deductible under section 80C. Also, the maturity benefit that the beneficiary received is tax-free under section 10(10D). If the insured has taken the critical illness cover rider, then the policyholder will get an additional deduction under Section 80D. | According to the old tax regime, the premium paid towards life insurance is tax deductible under section 80C. The maturity and tax benefit received by the beneficiary is tax-tree under section 10(10D). |
The bottom line
The above description and tabular comparison of the two separate insurance products have clarified the picture. The article must be helpful for you in concluding the best option for which you wish to invest. Both have their separate purpose. Some people opt for both to secure their family, but at least one must go for a term plan if not for the life insurance as it is necessary to ensure your family’s future against any eventuality.
