What is the Difference Between Life Insurance & Term Insurance?

What is Term Insurance and Life Insurance?

Before we get into the difference between the two types of insurance plans, it is important to understand “Is term insurance same as life insurance?”.

Term Insurance Plan

Term insurance is a type of life insurance. It provides coverage for a fixed period (term), usually ranging from 5 to 35 years. If the policyholder dies during this term, the insurer pays the sum assured to the nominee. The sum assured for this plan is usually higher than that of other types of life plans.

Key Points

• Affordable premiums
• High coverage amount
• No maturity or cash value in most plans
• Ideal for pure life protection

Life Insurance Plan

A life insurance policy, on the other hand, is an umbrella term that also includes term plans. It offers a financial cushion to the life assured’s family in case of their demise. Several types of life plans long-term coverage along with a savings or investment component. These plans not only provide a death benefit but may also pay a maturity benefit if you survive the policy term.

Key Points

• Higher premiums compared to term life plans
• Coverage can last until maturity or whole life (up to 100 years in some cases)
• Includes savings or investment benefits
• Can be used for long-term financial planning

Life Insurance vs Term Insurance: Overview of Differences

Let’s now go through the points of difference between insurance and term insurance —

Detailed Comparison – Term Life Insurance vs Life Insurance

1. Premiums

• Term plans have much lower premiums for the same sum assured
• Life insurance premiums are higher as they include an investment or savings component

2. Maturity Benefit

• Term plans generally don’t pay anything if you survive the policy term
• Life plans usually pay a maturity amount, often with bonuses or guaranteed additions

3. Bonus and Add-ons

• Life plans may offer bonuses, loyalty additions, or guaranteed returns
• Term life policies generally do not provide such additions

4. Surrender Value

• Term plans have no surrender value
• Life insurance policies acquire a paid-up or surrender value after a few years of premium payment

6. Flexibility

• Life plans allow more customisation, withdrawals, and loans against the policy
• Term coverage is straightforward with no cash value or withdrawal option

Term Insurance vs Life Insurance: Which is Better?

Understanding the difference between term insurance and life insurance is the first step in making an informed decision.

1. What’s your main reason for buying life insurance?

• If your goal is financial protection for your family in case of death, illness, or disability, go for a term plan. It offers high coverage at a low cost.

• If you also want long-term savings or retirement income, or simply want to leave a legacy, consider endowment plans, whole life plans, or retirement plans. They combine protection with savings/investments.

2. Do you prefer affordable premiums with high coverage?

• A term plan gives you a large life cover for a very affordable premium. This is perfect for strong protection without straining your budget.
• If you want lifelong coverage (up to 99–100 years) and are okay with a higher premium, a whole life plan could be a better choice.

3. Do you already have an investment portfolio?

• If you’ve already built a diversified portfolio, a term plan adds pure life cover without overlapping with your investments. This keeps your loved ones stay financially secure.

How to Choose Between Term Insurance and Life Insurance?

• Evaluate your financial goals and liabilities like education expenses, income replacement, outstanding debts, and more. 
• Find out how much coverage you need and how long it should last based on your financial goals and responsibilities.
• Check your budget to ensure you can easily afford the premiums.
• Think about how whole life insurance fits into your long-term savings and investment plans.
• Seek advice from a reliable insurance advisor or financial planner to make the right choice.

Frequently Asked Questions