Term Insurance Vs. Life Insurance: Major Differences (2024)

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Term Insurance Vs. Life Insurance: Major Differences (1)

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.

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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 PlansBasic Features
Level Term PlanPremiums are the same throughout the duration of policy
Increasing CoverAssured coverage increases as per the different stages of life
Decreasing CoverCoverage 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 PlanCan be changed to another insurance plan as per the need of the policyholder
Term Plan Plus RidersTerm 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 PlansBasic Features
Whole Life Insurance PlanCoverage is provided throughout the duration of policyholder’s life plus death benefits
Endowment PlansDeath benefit is given along with assured maturity benefits
Child Insurance PlansCombination of insurance and investment which secures the child’s future financial needs
Unit-Linked Insurance PlansCombination of life insurance and investment under a single plan
Pension PlanMonthly income payout is given to the policyholder once they retire
Money-Back PlanPay back the maturity benefits in installments or in lump sum, once the policy term has ended

Differences Between Term Insurance and Life Insurance

ParametersTerm PlansLife Insurance Policies
Scope of CoverageVery limited as it offers only death benefitsOffers both death and guaranteed maturity benefits
Premium CostHigh sum assured coverage with low premium ratesHigh premium rates
Policy TermRanges 10-35 yearsWider policy term with whole life coverage option up to 100 years in certain policies
FlexibilityLess flexible, can add riders to enhance the scope of coverageVery flexible. One can avail loan facility, make partial withdrawals, pay additional premiums for more benefits
Surrendering the PolicyEasy to surrender. Once the death benefit is paid or you stop paying the premiums, the policy lapsesTo receive the maturity benefits, one has to complete the policy term
RenewabilityTerm plans are renewable, and one can convert the policy into an endowment plan alsoOption to renew the plan once the policy matures
Investment OpportunityPure insurance planOne part of the premium is allocated to investment funds which ensures wealth creation
Death BenefitsPayablePayable on all the policies
Maturity BenefitsNo maturity benefit, with the RoP option, one can get back all the premiums paidOffers assured maturity benefits along with the bonus, if any, to the insured
Policy LoanNo such loan facilityCertain 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.

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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.

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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:

  1. 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
  2. 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
  3. 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.
  4. 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.

Term Insurance Vs. Life Insurance: Major Differences (2024)


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