Difference Between Term Insurance and Life Insurance

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Life insurance plans not only aid you in creating a financial corpus for the long term, but they also ensure that your family gets the financial support it needs in case of your unfortunate demise. Broadly speaking, there are two kinds of life insurance policies or plans you may opt for. These comprise term insurance and traditional life insurance. You need to understand the differences between term insurance vs life insurance when you decide to opt for a policy. 

Before we go into the differences between the two policies, you must grasp what both plans entail individually. 

Additional ReadInsurance Sector in India

Understanding Term Insurance

Among life insurance products, term insurance is one of the most basic and simple to grasp. A pure insurance plan, a term insurance policy, or plan gives compensation to beneficiaries or nominees only on the demise of the policyholder (the life insured). One of the main differences noted when you discuss term insurance vs life insurance is that term insurance has no saving feature present in the plan. Term insurance policies are only designed to give you death benefits but no survival benefits. 

Term Insurance - Scope of Coverage

Nowadays, insurers have enhanced the scope of coverage of term insurance plans to make them more appealing to potential policyholders. How do they do this? Insurers provide riders that are optional. For example, riders may include coverage for critical illness or an accidental death benefit. One of the most appealing features of term policies is that they give you a substantial amount of coverage with minimal premiums. For instance, you can easily get life coverage amounting to ₹1 crore just by paying a premium of a few thousand rupees to keep the plan in force. 

The most appealing term policies have some basic features, but they vary in terms of sums assured, premiums, and riders. For example, you can get terms plans in which premiums remain the same throughout the tenure of the policy. Then again, you can avail of a term insurance policy with an increasing amount of coverage as your financial goals change. 

Additional Read: Life Insura Corp Of India Share Price

Understanding Traditional Life Insurance

If you are considering term insurance vs life insurance, you should have an in-depth grasp of life insurance policies. A life insurance policy gives you extensive and comprehensive coverage for you, the policyholder, and your family. Additionally, life insurance plans offer the dual benefit of life coverage plus a savings feature. As they provide more broad-based coverage and offer many advantages, life insurance plans are more expensive compared to simple term plans. 

As far as life insurance plans go, the premiums you pay are divided into two groups. One part of the premium goes toward a death benefit payout to the nominees mentioned in the policy in case of the policyholder’s untimely demise. The other portion of the premium is allocated to the saving and investment component of the policy. One of the most perfect examples of such plans is a ULIP or Unit Linked Insurance Plan. 

There are many types of life insurance plans such as ULIPs, pension-based plans in which monthly payouts are given to policyholders after they retire, endowment plans, and more. 

Term Insurance vs Life Insurance - Differences

The differences between term insurance plans and life insurance plans is based on certain parameters, and these are mentioned below:

  • Coverage Scope

Term plans have limited coverage scope as they offer only death benefits. Life insurance plans give you guaranteed maturity benefits and death benefits. 

  • Policy Term

The tenure of a term policy may range from 10 to 35 years, whereas a life insurance policy’s term gives you entire life coverage with options to extend up to 100 years in certain plans. 

  • Price of Premiums

Perhaps the most compelling difference between term insurance vs life insurance is the cost of premiums. In term insurance, the coverage is substantial, but the premiums are low in cost. In life insurance, the premium cost is high, as the plans give you a more extensive coverage scope and different options to choose from. 

  • Flexibility 

Term insurance is less flexible compared to life insurance. In term insurance, although you can add riders, life insurance gives you flexibility so that you can make partial withdrawals, avail loans, and pay additional premiums for greater benefits. 

  • Termination of Policies

Term insurance policies are easy to surrender once you stop paying premiums or the death benefit is paid. In life insurance policies, the policyholder must complete the tenure of the policy to receive benefits at maturity. 

  • Investment Options

Term insurance does not offer you any investment options and it is a pure insurance plan. Life insurance plans give you options to create wealth and grow capital as well as to get insurance coverage. 

Which policy should you get?

When it comes to deciding between term insurance vs life insurance plans, both have their pros and cons. Life insurance plans may offer you greater scope in coverage with many other advantages but have high premiums. On the other hand, if you want a basic policy of coverage with low premiums, term insurance may be considered. Ultimately, you must opt for a policy that suits your individual financial goals. 

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

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