Strong financial planning requires a perfect mix of investment and insurance. When it comes to insurance, many people prefer opting for term insurance or life insurance products. However, as both these insurance products serve the same purpose of securing the financial future of the family, the buyers often get confused between these two policies. To help our readers understand both the policies in detail in this article, we have discussed elaborately what is term insurance and what is life insurance and what is the difference between the two.
What is a Term Insurance Plan?
A term insurance plan, also known as a pure protection plan, is the simplest form of life insurance product that offers financial security to the family of the insured. As a pure protection plan, the term insurance policy offers insurance coverage only in the form of a death benefit to the beneficiary of the policy. There is no maturity benefit offered under a term insurance policy. The death benefit is paid to the nominee of the policy in event of the unfortunate demise of the life assured during the tenure of the policy. Once the death benefit is paid to the beneficiary of the policy is terminated.
Types of Term Insurance Plans in India
There are different types of term insurance plans available in the market. These are:
- Increasing term insurance plan
- Level term insurance plan
- Decreasing term insurance plan
- Convertible term insurance plan
- Term plan with return of premium (TROP)
- Term insurance plans with riders
What is a Life Insurance Plan?
As compared to the term insurance policy, the life insurance plan provides a death benefit as well as a maturity benefit to the policyholder. Life insurance policies ensure the financial security of the family in case of any eventuality. Also, it helps to create a financial cushion in the long term. A life insurance policy is an agreement between the insurance company and the policyholder wherein, the insurance company agrees to pay a lump-sum sum assured amount to the policy against the premium paid towards the policy.
In a life insurance policy, the death benefit is paid to the beneficiary of the policy in case of uncertain death of the policyholder during the policy tenure. However, if the life assured survives the entire tenure of the policy, then a sum assured amount is paid as maturity benefit to the life assured at the end of the policy tenure and the policy terminates.
Types of Life Insurance Plans in India
- Whole life insurance plan
- Endowment plan
- Money back policy
- Child insurance plan
- Unit linked insurance plan
- Pension plan
- Term insurance plan
Term Insurance Vs Life Insurance
The following table will help to gain perspective on life insurance and term insurance features:
|Features||Term Insurance||Life Insurance|
|Policy Coverage||A pure protection plan only offers a death benefit to the beneficiary of the policy||A life insurance plan offers both death benefit and maturity benefit to the life assured|
|Premium cost||As there is no maturity benefit offered by the policy the premium rate of the term plan is lower||The life insurance policy charges a higher premium rate as compared to a term plan|
|Death Benefit||The death benefit is paid to the nominee of the policy if the policyholder dies during the policy tenure||The death benefit is paid to the nominee of the policy if the policyholder dies during the policy tenure|
|Maturity Benefit||There is no maturity benefit offered in a term insurance plan. However, in TROP the maturity benefit is offered as a survival benefit to the life assured if he/she survives the entire policy tenure||Maturity benefit is offered as a total sum assured amount to the policyholder at the end of the policy tenure if he/she survives the entire tenure of the policy|
|Policy Tenure||The policy tenure ranges between 10 years to 35 years||The term period of the policy ranges between 5 years- 30 years|
|Flexibility||Offers the flexibility to choose different rider options.||Offers the flexibility to avail of loans, make partial withdrawals, and pay the additional premiums.|
|Tax benefit||Tax Benefit can be availed under Section 80C of the IT Act on the premium paid towards the policy||Tax Benefit can be availed under Section 80C and 10(10D) of the IT Act on the premium paid towards the policy and the maturity proceeds|
|Risk Covered Vs Savings||With higher insurance coverage, the term insurance policy secures the financial future of the family especially in the absence of the breadwinner of the family||A life insurance policy secures the financial future of the family against eventualities. It also helps to accumulate funds in the long term|
Term Insurance or Life Insurance- What to Choose?
Before zeroing in on a particular plan, it is important to evaluate certain things, which include:
- The current financial situation
- The future financial goals
- The current expenses
Based on the evaluation, one can compare the difference between life insurance and a term insurance plan and make an informed choice. Also, make sure to consider other aspects such as coverage of the policy, premium rate, riders, exclusion, etc.