Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.
Term Insurance vs. Life Insurance
The life insurance policies do not only help you to create a long-term financial corpus for your future, but also ensures that your family has immediate financial support if any unfortunate event like death happens to you. Broadly, there are two types of life insurance plans i.e., term insurance policies and traditional life insurance policies.
Here are the major differences between the two and which one you should consider in your financial plan.
Featured Partners
1
Max Insurance
Price
2 Crore Term Plan Starting From INR 1046/Month
Income Tax Benefits
Upto INR 54,600
Additional Benefits
Covers 64 Criticall Illnesses, 20% Savings on Premiums for Women and Zero Additional Cost on Terminal Illness Coverage
On Max Life's Website
Term Insurance Plan
Term insurance is one of the most simple, basic and pure life insurance products. It provides compensation to the family or nominee only at the demise of the person insured. There is no saving component present in the term plans. Thus, they are only designed to offer death benefits and no survival benefits.
Nowadays, to enhance the scope of coverage, many insurance companies provide optional riders such as accidental death benefit or critical illness cover. One of the best features of term plans is that they provide substantial coverage with low premium prices. For example, one can easily get a life cover as huge as INR 1 crore just by paying a premium of some thousand rupees.
To know more about best term plans available in the market, read our analysis of best term life insurance plans.
What are the Different Types of Term Insurance Plans?
Term plans have basic features; however, they are varied in terms of premiums, sum assured coverage and riders.
| Types of Term Plans | Basic Features |
|---|---|
| Level Term Plan | Premiums are the same throughout the duration of policy |
| Increasing Cover | Assured coverage increases as per the different stages of life |
| Decreasing Cover | Coverage decreases over the duration of policy |
| Return of Premium (RoP) | Premiums that have been paid are returned in full if you survive till the end of the policy term |
| Convertible Plan | Can be changed to another insurance plan as per the need of the policyholder |
| Term Plan Plus Riders | Term plan with add-on riders increases the coverage of the basic plan |
Life Insurance Plan
Life insurance policies are designed to offer comprehensive and extensive coverage to the policyholder and their families. These kinds of insurance plans also provide the dual benefit of life cover along with a savings component; hence they are considered more expensive than pure and basic term plans.
In life insurance plans, the premiums are divided into two categories, where one part is allocated towards providing death benefit to the nominees, and the other chunk of premium is allocated to the investment and saving component. The best example of this is ULIP plans.
Read our analysis on the Best ULIP Plans for more details.
What are the Different Types of Life Insurance Plans?
| Types of Life Insurance Plans | Basic Features |
|---|---|
| Whole Life Insurance Plan | Coverage is provided throughout the duration of policyholder’s life plus death benefits |
| Endowment Plans | Death benefit is given along with assured maturity benefits |
| Child Insurance Plans | Combination of insurance and investment which secures the child’s future financial needs |
| Unit-Linked Insurance Plans | Combination of life insurance and investment under a single plan |
| Pension Plan | Monthly income payout is given to the policyholder once they retire |
| Money-Back Plan | Pay back the maturity benefits in installments or in lump sum, once the policy term has ended |
Differences Between Term Insurance and Life Insurance
| Parameters | Term Plans | Life Insurance Policies |
|---|---|---|
| Scope of Coverage | Very limited as it offers only death benefits | Offers both death and guaranteed maturity benefits |
| Premium Cost | High sum assured coverage with low premium rates | High premium rates |
| Policy Term | Ranges 10-35 years | Wider policy term with whole life coverage option up to 100 years in certain policies |
| Flexibility | Less flexible, can add riders to enhance the scope of coverage | Very flexible. One can avail loan facility, make partial withdrawals, pay additional premiums for more benefits |
| Surrendering the Policy | Easy to surrender. Once the death benefit is paid or you stop paying the premiums, the policy lapses | To receive the maturity benefits, one has to complete the policy term |
| Renewability | Term plans are renewable, and one can convert the policy into an endowment plan also | Option to renew the plan once the policy matures |
| Investment Opportunity | Pure insurance plan | One part of the premium is allocated to investment funds which ensures wealth creation |
| Death Benefits | Payable | Payable on all the policies |
| Maturity Benefits | No maturity benefit, with the RoP option, one can get back all the premiums paid | Offers assured maturity benefits along with the bonus, if any, to the insured |
| Policy Loan | No such loan facility | Certain plans offer loan facility against the policy |
| Taxation Benefits | Premiums paid are eligible for tax deduction under section 80C of Income Tax Act Death benefits received by nominees are tax-free under Section 10(10D) of the Income Tax Act | Premiums paid are eligible for tax deduction under section 80C of Income Tax Act Death and maturity benefits received by nominees are tax-free under Section 10(10D) of the Income Tax Act |
Bottom Line
Both life insurance and term insurance policies have their own benefits and drawbacks. On one hand, the life insurance plans provide lifetime coverage, flexible premium payment terms, assured maturity benefits, flexible income payout options at a higher premium cost. On the other hand, term plan is a pure life cover which offers only death benefit at a very lost cost and affordable premium range.
So, to make a decision which kind of policy should be a part of your portfolio, totally depends on your financial goals and financial health of you and your family.
Featured Partners
1
Max Insurance
Price
2 Crore Term Plan Starting From INR 1046/Month
Income Tax Benefits
Upto INR 54,600
Additional Benefits
Covers 64 Criticall Illnesses, 20% Savings on Premiums for Women and Zero Additional Cost on Terminal Illness Coverage
On Max Life's Website
Frequently Asked Questions
Why should I take life insurance policies?
Life insurance policies offer financial security to the entire family and dependents, if something happens to the life insured. It also helps to accumulate long-term savings which is paid to the policyholder once the policy matures and thus helps in wealth creation. These policies also help in securing your child’s future and help in paying off loans and liabilities, even if you will not be around.
At what age should I consider buying a term plan?
The earlier the better. The minimum entry age of the term plan generally starts from 18 years and the maximum goes up to 65 years.
Is it beneficial to purchase a term plan?
Whether to buy a term plan or not depends totally on your financial goal. Term insurance plans are the easiest and most affordable option that offers you the high sum assured coverage at low-cost premium rates.
Can I pay premiums of life insurance plans as per my wish?
The policyholder has the option of paying premium at once, or for a regular and limited period. One has the flexibility to choose the premium payment mode as per their requirement.
What happens if I stop paying the premiums?
There is generally a grace period of 30 days in all the life insurance policies from the premium due date. If the premiums have not been paid further to the grace period, then the policy lapses along with all the benefits.
Do I have the option of getting my money back if I purchase a term plan?
In case of term insurance, the premiums paid are not returned at the end of the policy. But, if you choose the option of “return of premium”, then in this case you receive back all the money that you paid as premiums, at the end of the policy.
Information provided on Forbes Advisor is for educational purposes only. Your financial situation is unique and the products and services we review may not be right for your circ*mstances. We do not offer financial advice, advisory or brokerage services, nor do we recommend or advise individuals or to buy or sell particular stocks or securities. Performance information may have changed since the time of publication. Past performance is not indicative of future results.
Forbes Advisor adheres to strict editorial integrity standards. To the best of our knowledge, all content is accurate as of the date posted, though offers contained herein may no longer be available. The opinions expressed are the author’s alone and have not been provided, approved, or otherwise endorsed by our partners.
Rashi MaheshwariEditor
Rashi Maheshwari is a former Deputy Editor for Forbes Advisor India.
I am an insurance expert with extensive knowledge in both term insurance and life insurance. My expertise is derived from years of working in the insurance industry, analyzing policies, and staying updated on the latest trends and offerings. I have a deep understanding of the nuances between term insurance and life insurance, as well as the various types of plans and features associated with each.
In the provided article on Forbes Advisor, the author discusses the differences between term insurance and life insurance, outlining key aspects that individuals should consider when choosing a life insurance policy. Here's a breakdown of the concepts covered in the article:
-
Term Insurance:
- Definition: Term insurance is a basic and pure life insurance product that provides compensation to the family or nominee only in the event of the insured person's demise.
- Features: It offers death benefits only, with no saving component. Optional riders such as accidental death benefit or critical illness cover can be added to enhance coverage.
- Types of Term Plans:
- Level Term Plan
- Increasing Cover
- Decreasing Cover
- Return of Premium (RoP)
- Convertible Plan
- Term Plan Plus Riders
-
Life Insurance Plans:
- Definition: Life insurance policies provide comprehensive coverage with a dual benefit of life cover and a savings component, making them more expensive than term plans.
- Types of Life Insurance Plans:
- Whole Life Insurance Plan
- Endowment Plans
- Child Insurance Plans
- Unit-Linked Insurance Plans (ULIP)
- Pension Plan
- Money-Back Plan
-
Differences Between Term Insurance and Life Insurance:
- Scope of Coverage:
- Term Plans: Limited to death benefits only.
- Life Insurance Policies: Offer both death and guaranteed maturity benefits.
- Premium Cost:
- Term Plans: Low premium rates with high sum assured coverage.
- Life Insurance Policies: Higher premium rates.
- Policy Term:
- Term Plans: Typically 10-35 years.
- Life Insurance Policies: Wider policy term, including whole life coverage up to 100 years in certain policies.
- Flexibility:
- Term Plans: Less flexible, but riders can be added.
- Life Insurance Policies: More flexible, with options like loans, partial withdrawals, and additional premiums for benefits.
- Surrendering the Policy:
- Term Plans: Easy to surrender.
- Life Insurance Policies: Policy must be completed to receive maturity benefits.
- Renewability:
- Term Plans: Renewable; can be converted into an endowment plan.
- Life Insurance Policies: Option to renew after maturity.
- Investment Opportunity:
- Term Plans: Pure insurance.
- Life Insurance Policies: Part of the premium allocated to investment funds for wealth creation.
- Death and Maturity Benefits:
- Term Plans: Payable on death.
- Life Insurance Policies: Payable on both death and maturity, with maturity benefits including bonuses.
- Scope of Coverage:
-
Taxation Benefits:
- Both term plans and life insurance policies offer tax deductions on premiums paid and tax-free death and maturity benefits under specific sections of the Income Tax Act.
In conclusion, the article provides a comprehensive comparison between term insurance and life insurance, highlighting their respective benefits, drawbacks, and factors to consider based on individual financial goals and health.
