April 26, 2023

Difference between term insurance And life insurance

Life is uncertain, and we want to ensure our dependents continue living a comfortable life, at least financially, even after our passing. Life insurance is an instrument that helps create a financial corpus that can be useful in the future. Life insurance can broadly be divided into two types - term insurance and life insurance. Are you curious to know the difference between term insurance and life insurance?
Let us first understand what term and life insurance plans are! We will then look at the differences between them.

What is a term insurance plan?

In simple terms, it is pure life insurance. The proposer (policy owner) pays the insurance regularly for a specific term (period). In an unfortunate situation of the proposer’s death, the beneficiary (nominee) gets the financial compensation if the proposer dies while the policy is in force.
Many insurance companies offer plain life insurance, whereas others offer optional riders. For example: accidental death benefit or critical illness coverage.
Different insurance companies offer various term insurance plans with various benefits. A few are listed below. This is, of course, not a comprehensive list.
  • A level term plan offers the term plan with a uniform premium throughout the term.
  • Return on premium plan offers the return of the premium in case the proposer reaches the maximum age limit.
  • A convertible plan offers the facility to convert your term life insurance plan into other insurance plans as deemed by the proposer.

What is a life insurance plan?

This is a plan offering comprehensive life cover and saving components. A life insurance plan offers death cover to the beneficiary in case of the demise of the policyholder. S/he also gets returns on completion of the policy terms, known as maturity benefit.
The premium paid by the proposer is divided into two parts. One part gets allocated to life cover, and the other portion proceeds to savings and investments.
There are multiple types of life insurance plans offered by insurance companies with different and focused benefits. Although the list is long, some of them are listed below:
  • Whole life insurance plan covers the proposer till death along with death benefits to the beneficiary.
  • An endowment plan provides the death benefit to the beneficiary with the market returns based on the policy terms.
  • Unit-linked insurance plans, also referred to as ULIP, offer a combination of death cover and investment benefits.
  • Pension plans offer retirement benefits after a specific age.

What is the difference between life Insurance and term insurance?

Let us understand each one of them in detail.

Death benefit

A term plan provides the benefit only on the demise of the policyholder within the specified term period. The policyholder gets no benefit if death happens after the policy term completes.
Traditional life insurance plans provide benefits in case of death with maturity benefits. Otherwise, the policyholder gets the policy maturity benefit on completion of the term.

Survival benefits and savings

The term insurance plan provides the nominee with a higher death benefit cover. However, no returns are paid if the policyholder survives the term.
Life insurance plans help create a future corpus while providing the death benefit to the nominee. As part of it is invested in the market, you get the returns on maturity.

Tenure

One of the major differences between life insurance and term insurance is the tenure for which it is applicable. Term insurance offers coverage for a fixed period/age of the individual. It can have a fixed term such as 10, 15, or 20 years. One can also get the cover up to the age of 85 years in most cases.
Life insurance can also have a tenure. However, you can choose it for your whole life until you reach the age of 100 years.

Policy surrendering terms

Term policy is deemed to be surrendered or lapsed if you stop paying the premium. The benefits also terminate on policy surrender.
Life insurance benefits can only be claimed after the decided term or maturity completes. If you wish to surrender the policy prematurely, you will only get back the paid premium amount post deduction of some administrative charges.

Premium amount

Although term life insurance offers higher benefits, it has a low cost. This is because no returns are offered at the end of the duration.
Life insurance policies reap higher results if continued for a longer period. Although the death benefit is lower, the market returns can earn a good amount for the policyholder during maturity.

Tax benefit

Both policy premiums are exempted from tax deduction under section 80C of the Income Tax Act.

Conclusion

Both term insurance and life insurance have their exclusive relevance and benefits. Based on the differences mentioned above, one can choose the best plan after exploring various options available in the market. Although the traditional life insurance plan offers returns in the form of maturity and other benefits, it is advised to have at least one term insurance as the cover benefit is much higher than that of a life insurance plan.

Disclaimer

The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.

Never miss a trading opportunity with Margin Trading Facility

Enjoy 2X leverage on over 900+ stocks

Upstox Margin Trading Facility
Apple Logo
Downloadlogo
iOS App
Google Play Logo
Downloadlogo
Android App

RELATED ARTICLES

PM Kisan Samman Nidhi Yojana Online 2023 - Scheme & Benefits

The PM Kisan Samman Nidhi Yojana was launched by Prime Minister Narendra Modi with a vision to transform India's agricultural sector and promote the concept of Aatmanirbhar Krishi. The scheme was operational from 1st December 2018, and on 24th February 2019, Prime Minister Narendra Modi announced in Gorakhpur, Uttar Pradesh, that the Nation had established the PM Kisan Samman Nidhi Scheme (PMKISAN) to support the financial needs of land-owning farmers. Under this scheme, the selected beneficiary farmers will be given INR 6000 every year, with an INR 2000 every four months, directly credited into their bank accounts. Under this scheme, the PM of India promised a payout of INR 75000 crores to the farmers of India annually with a key objective to support the financial needs of the Small and Marginal Farmers and dissuade them from over-relying on moneylenders to cover such costs. This scheme was also launched to modernise agriculture and ensure the continuation of hassle-free agricultural activities. The Government of India wholly owns the PM Kisan Yojana, and every farmer family who owns a piece of land of up to 2 hectares will receive an annual income subsidy of INR 6,000 in three installments. This system defines family as a husband, wife, and minor children. State governments and UT administrators must identify eligible farmers under program guidelines and properly record their family records in the state or UT land registry.

Bhamashah Yojana 2023 - Download Card & How to Apply Online

The introduction of Bhamashah Yojana is considered to be the first step towards digitisation of the Rajasthan State Government. This scheme aims to provide financial dependence to the women in the state. Get all the details about this yojana below.

Atal Pension Yojana (APY) 2023: Benefits, Login, Details, Schemes, & Registrations

Atal Pension Yojana was launched on 9 May 2015 to create a universal social security system for all Indians. With a focus on the needy, the underprivileged, and the unstructured sector workers, [Pension Fund Regulatory and Development Authority](https://upstox.com/saving-schemes/pension-fund-regulatory-and-development-authority-pfrda/), i.e. PFRDA, oversees APY. In this article, you will learn about the objectives, form download procedure, Atal Pension Yojana investment scheme, advantages of joining the Atal Pension Yojana scheme, benefits and characteristics, frequently asked questions, etc. Every bank account user between the ages of 18 and 40 is eligible for Atal Pension Yojana, and the amount varies according to the selected pension amount. With the caveat that beginning on 1 October 2022, any citizen who is or has ever paid income taxes is unable to join Atal Pension Yojana. The government would guarantee a minimal pension. This means that the Central Government would cover any shortfall if the contributions-based accumulated corpus generates a return on investment that is below expectations and insufficient to cover the minimum guaranteed pension. Alternatively, the subscribers would receive improved pensionary benefits if the returns on investments were higher.

National Pension Scheme (NPS) India 2023: Login, Registrations, Meaning, & benefits

The Government of India launched the National Pension Scheme for all government employees who joined after April 1, 2004, since it did not want to pay them defined benefits. While it was initially meant for Government employees, all citizens of India between the ages of 18 and 65 became eligible for the scheme in 2009. The goal of this scheme was to cover all Indian citizens, including those working in the unorganized sector. The [Pension Fund Regulatory and Development Authority](https://upstox.com/saving-schemes/pension-fund-regulatory-and-development-authority-pfrda/), or PFRDA, is the body that regulates and administers NPS. The Act governing the National Pension Scheme is the PFRDA Act 2013. This is a voluntary defined contribution pension system. Professional fund managers manage the funds that are invested in market-linked instruments. Individual subscribers contribute to the fund that keeps accumulating till retirement age. The investments under the NPS Scheme keep growing at market-linked rates depending on the fund chosen. There is an exit option for subscribers before reaching the superannuation age. The subscriber cannot withdraw the entire funds; a portion of the funds is used to provide the subscriber with a monthly pension. An annuity policy is purchased with a minimum of 40% of the corpus accumulated under the NPS scheme for providing a lifetime pension to the subscriber. The remaining 60% can be commuted or claimed as a lump sum by the subscriber.