What is the Difference Between Term Insurance Plan and Life Insurance Plan?

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:

FeaturesTerm InsuranceLife Insurance
Policy CoverageA pure protection plan only offers a death benefit to the beneficiary of the policyA life insurance plan offers both death benefit and maturity benefit to the life assured
Premium costAs there is no maturity benefit offered by the policy the premium rate of the term plan is lowerThe life insurance policy charges a higher premium rate as compared to a term plan
Death BenefitThe death benefit is paid to the nominee of the policy, if the policyholder dies during the policy tenureThe death benefit is paid to the nominee of the policy, if the policyholder dies during the policy tenure
Maturity BenefitThere 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 tenureMaturity 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 TenureThe policy tenure ranges between 10 years to 35 yearsThe term period of the policy ranges between 5 years- 30 years
FlexibilityOffers the flexibility to choose different rider options.Offers the flexibility to avail of loans, make partial withdrawals and pay the additional premiums.
Tax benefitTax Benefit can be availed under Section 80C of the IT Act on the premium paid towards the policyTax 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 SavingsWith higher insurance coverage, the term insurance policy secures the financial future of the family especially in the absence of the breadwinner of the familyA 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.

The Bottom Point!

Both term insurance plans and life insurance plans are the most popular insurance products available in the market. However, if an individual evaluates their needs and tries to align their future financial goals, then they can choose the most beneficial plan as per their requirements.

FAQs
Can I buy both, a term insurance plan and a life insurance plan at the same time?
Yes, you can buy both, term insurance and life insurance plans at the same time.
Do term insurance plans and money-back plans offer death benefits?
Yes, both the plans offer a death benefit to the beneficiary of the policy in case of the demise of the life assured during the policy tenure.
What is the tax benefit offered in a life insurance policy?
The policyholder can save on taxes on the premium paid towards the policy U/S 80C of the IT Act. Moreover, the maturity proceeds are also tax exempted under section 10 (10D) of the IT Act.
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