In your search for the finest life insurance policy for your family, you may have come across both term and whole life insurance plans as you compared the various insurance policies on the market today. Before you get a policy for yourself, it’s crucial to know which one would best suit your financial needs. Both of them are designed to give the policyholder life insurance. However, returning to the fundamentals, what are the differences between term insurance and life insurance, and which is best for your needs? These two types of policies are still the most common and straightforward to comprehend. We’ll outline the salient characteristics that set these pillars of insurance apart.
Term insurance
A term plan is a straightforward, pure protection plan that uses the premium you pay to pay your dependents’ death benefits in the event of your untimely passing in the future. When the insurance matures or if you live past the term plan’s duration, the beneficiaries are not eligible for any payouts. You are, however, able to select the length of your insurance and the amount of coverage. Under some circumstances, you may even be able to purchase a term policy with a high sum assured for a lower cost.
Life insurance
This is a thorough insurance plan that offers flexibility in choosing the tenure and sum assured in addition to benefits if the policy matures or you survive the policy’s term. The insured can choose to receive their maturity payout in a flat sum or over the course of several payments with lower interest rates. This is the greatest life insurance policy you can get to secure your finances forever.
Features of Term Insurance
- It is a life insurance policy with a set tenure.
- There is typically no maturity benefit associated with a term insurance plan, unlike a straightforward life insurance policy. However, some insurance companies have begun providing term plans with the choice of a return of premiums paid at maturity if the life insured is unharmed.
- Among all current life insurance products, term plans have some of the biggest sums assured. Additionally, their premiums are very reasonable.
- People with pre-existing conditions or elderly age pay higher premiums.
- By providing them with lower prices, several insurers entice women to purchase term insurance.
- If the policyholder goes away, the substantial corpus is transferred to the nominee.
Features of Life insurance
- The applicant is covered under the life insurance policy for their entire lifespan. Over the course of the policy, a corpus is slowly built.
- The policyholder may also take out a loan against the corpus after it has grown to a sizeable amount.
- Life insurance is the best option for those seeking long-term life protection. The benefits of dying are certain. The plan corpus may be used by the policyholder’s loved ones to achieve their financial objectives.
- Due to the addition of a cash value component, life insurance is more expensive than term insurance.
- Life insurance, as opposed to term insurance, enables future adjustments to premium payments.
- If the applicant smokes, abuses drugs have a poor health profile or works in a “risky” or financially precarious profession, the premiums will be higher.
Differences Between Term Insurance And Life Insurance: Features
An illustration of the key differences between term insurance and life insurance is provided in the table that follows.
| Features | Term Insurance Plan | Life Insurance Plan |
|---|---|---|
| Policy Coverage | Basic term insurance policies solely provide death benefits to the insured’s dependents. | The insured and their family can benefit from life insurance both at death and at maturity. |
| Premium Cost | The least expensive life insurance option on the market is term insurance. | In India, the cost of life insurance is more expensive than that of term insurance. |
| Death Benefits | Beneficiaries of the policy receive death benefits through term insurance. | The beneficiaries of the life insurance policy receive death benefits as well. |
| Maturity Benefits | Actually, if the insured lives past the term of the policy, there are no maturity benefits available. With the return of the premium option, however, the insurer will reimburse the premiums paid if the policyholder lives out the term. | The insured party of life insurance typically receives benefits upon maturity. |
| Time Period | It spans from ten to thirty-five years. | It ranges from five to thirty years. The insured is covered by whole life insurance for the entirety of their life. |
| Flexibility | The only flexibility provided by term insurance policies is the addition of rider benefits, such as critical sickness coverage, return of premium coverage, accidental death benefits, income return benefits, etc., to expand the policy’s coverage. | Plans for life insurance are quite adaptable. The plan allows for partial withdrawals, loans, and the ability to pay supplemental premiums for additional benefits. |
Differences Between Term Insurance And Life Insurance: Benefits
You can clearly see the differences between term insurance and life insurance in the table below, which compares their benefits.
| Features | Term Insurance Plan | Life Insurance Plan |
|---|---|---|
| Risk Covered vs Savings | Plans for term insurance provide financial security for your friends and family, especially when you are away. In general, the policy provides no benefits even if you live past the policy’s term. | The family’s finances will be taken care of if you pass away thanks to life insurance policies. Additionally, life insurance policies give you the option to invest and gradually increase your money. |
| Policy Surrendering | It’s simpler to cancel term insurance. The policy expires and lapses once the premiums are stopped. | For life insurance plans, you must finish the policy term in order to earn the maturity benefits. Therefore, you might not be able to get your money back if you decide to cancel the policy before the term is out. If certain deductions are made, the insurance could restore the premiums that were paid. |
| Policy Renewal | Plans for term insurance are revocable. The policy could potentially be changed into an endowment plan at your discretion. | Only after the life insurance policy reaches maturity will you have the choice to renew. |
| Tax Benefits | Section 80C of the previous income tax law allows you to deduct taxes on the premiums you paid for the insurance policy. According to Section 10(10D) of the Income Tax Act of 1961, the death benefits received by the beneficiaries are not subject to taxation. If you have critical illness insurance, Section 80D allows you further deductions. | Under Section 80C of the previous income tax system, you are able to deduct the premiums paid for life insurance plans from your taxes. According to Section 10, the maturity and death benefits received are tax-free (10D). |
Which one to choose?
The greatest life insurance option for someone in their early 20s or 30s who is still single is a term plan. A policy with a big sum assured will cost less the earlier you purchase one. Additionally, term plans guarantee better returns quickly if you have any current health issues.
Are you married with children and in your mid-to-late-30s? Add a whole life rider to the current term insurance policy. This gives you the benefit of both the cash value associated with the former and the financial advantages associated with the latter for your family while you are away.
A whole life plan is preferable to a term plan if you are in your 40s or older because it will be less expensive at this point in your life. A whole life insurance policy would provide lifetime coverage for you as well as after your passing, an inheritance for your heirs.
Keeping the aforementioned information in mind, select the finest life insurance policy after understanding the differences between term insurance and life insurance.
Conclusion
As you can see from the tables comparing term insurance and life insurance above, both of these products give policyholders and their families financial security. To keep your family financially secure and worry-free, even if you are not seeking a full-fledged whole life insurance policy, it is crucial to purchase a term insurance plan. If you have any queries related to differences between term insurance and life insurance then do ask in the comment box.
