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Features
Ref. No. KLI/22-23/E-BB/492
Term insurance provides coverage for a specific period and pays out only if the insured dies during that term, while life insurance offers lifelong coverage with a savings component, paying out upon death regardless of when it occurs.
Term insurance provides coverage for a specific period and pays out only if the insured dies during that term, while life insurance offers lifelong coverage with a savings component, paying out upon death regardless of when it occurs.
Exploring the insurance market can be complex, especially when understanding the difference between term plan and life insurance. These two common insurance products serve distinct purposes and offer different benefits, making it essential to grasp their differences to make informed decisions about your financial protection.
If you are someone willing to buy an insurance plan, then you should understand the fundamentals of term insurance and life insurance and explore their features, benefits, and key term insurance and life insurance differences to help you choose the right coverage for your needs.
Term vs life insurance are two common types of insurance products designed to provide financial protection to policyholders and their beneficiaries. However, there is a difference between term and life insurance. Term insurance offers coverage for a specific period and pays out a death benefit if the insured person dies during the policy term. On the other hand, life insurance provides coverage for the entire lifetime of the insured person as long as premiums are paid. It offers a death benefit to beneficiaries upon the insured’s death, regardless of when death occurs. Life insurance policies accumulate cash value over time, which can be accessed through policy loans or withdrawals.
Understanding the difference between term plan and life insurance is crucial for making informed decisions when choosing the right insurance coverage to protect yourself and your loved ones. Here is a table with differences between term insurance and life insurance to help you decide:
| Feature |
Term Insurance |
Life Insurance |
| Coverage |
Provides coverage for a specific period |
Provides coverage for the entire lifetime of the insured |
| Premiums |
Generally lower |
Generally higher |
| Cash Value |
Does not accumulate cash value |
Builds cash value over time, which can be borrowed against or used to pay premiums |
| Maturity Benefits |
No maturity benefits |
May have maturity benefits, such as a payout at the end of the policy term |
| Death Benefits |
Paid if death occurs during the term |
Paid regardless of when death occurs |
| Policy Duration |
Fixed term |
Lifelong coverage |
| Tax Benefit |
Death benefits are typically tax-free |
Death benefits typically tax-free, and cash value growth may be tax-deferred |
| Loan Benefit |
Typically not available |
May allow policy loans against cash value |
| Surrender Value/ Paid-up Value |
Typically no surrender value or paid-up value |
May have surrender value or paid-up value, allowing for partial withdrawal or conversion into a reduced paid-up policy |
Term Insurance: Term insurance is designed to provide coverage for a specific period, known as the term of the policy. Life insurance, often referred to as whole life or permanent life insurance, provides coverage for the entire lifetime of the insured, and the death benefit will be paid out to the beneficiaries whenever the insured person passes away, regardless of their age or how long they have held the policy.
Premiums:
Term Insurance: Term insurance generally comes with lower premiums compared to life insurance because it only provides coverage for a limited period, and there is no cash value component or maturity benefit. While the fife insurance generally has higher premiums because it provides lifelong coverage and includes a cash value component.
Cash Value:
Term Insurance: Term insurance does not accumulate any cash value but Life insurance builds cash value over time, which can serve as a savings component within the policy. This cash value grows on a tax-deferred basis and can be borrowed against or used to pay premiums.
Maturity Benefits:
Term Insurance: Term insurance typically does not offer any maturity benefits. If the policyholder outlives the term of the policy, there is no payout, and the coverage simply ends. Life insurance policies usually offer maturity benefits, depending on the type of policy. For example, some whole life policies include a maturity benefit where the policyholder receives a payout if they live to a certain age, or at the end of the policy term.
Death Benefits:
Term Insurance: Term insurance pays out the death benefit only if the insured dies during the term of the policy whereas life insurance pays out the death benefit regardless of when the death occurs, as long as the policy is in force.
Policy Duration:
Term Insurance: Term insurance has a fixed duration. The coverage lasts only for the chosen term, and once it ends, the policyholder must either renew the policy (usually at a higher premium) or let it expire. Life insurance offers lifelong coverage, meaning it remains in effect for the entire lifetime of the insured as long as the premiums are paid. There is no need to renew the policy, and it provides ongoing protection until death.
Tax Benefit:
Term Insurance: Term insurance death benefits are typically tax-free, meaning the beneficiaries do not have to pay taxes on the payout received upon the insured’s death. However, since term insurance does not have a cash value component, there are no additional tax advantages. Life insurance also provides tax-free death benefits to the beneficiaries. In addition, the cash value growth within the policy is typically tax-deferred, meaning the policyholder does not have to pay taxes on the gains as long as they remain within the policy.
Loan Benefit:
Term Insurance: Term insurance typically does not offer a loan benefit since it does not accumulate cash value. But some of the life insurance plans may allow policyholders to take out loans against the cash value that has accumulated within the policy.
Surrender Value/ Paid-up Value:
Term Insurance: Term insurance typically has no surrender value or paid-up value. A life insurance may have a surrender value or paid-up value that can allow the policy to continue with reduced coverage, without the need for further premium payments, by using the accumulated cash value.
Determining whether term or life insurance is better depends on your circumstances, financial goals, and preferences. If you prioritize affordability and temporary coverage, term insurance may be the right choice. Life insurance may be more suitable if you value lifelong protection and potential cash value accumulation. It is essential to carefully evaluate your financial situation and consult a financial advisor to determine which type of insurance best aligns with your goals and circumstances.
Term insurance is a straightforward form of life insurance that provides coverage for a specified term or period. Unlike permanent life insurance policies such as whole life or universal life, which provide coverage for the insured’s entire life, term insurance offers coverage for a predetermined duration. If the insured person passes away during the term of the policy, the designated beneficiaries receive a death benefit payout.
Term insurance is known for its affordability and simplicity, making it a popular choice among individuals who want to ensure their family’s financial stability without breaking the bank.
Life insurance is a contract between an individual (the policyholder) and an insurance company. In exchange for regular premium payments, the insurance company promises to provide a financial benefit to the policyholder’s beneficiaries upon the policyholder’s death. This benefit, known as the death benefit or payout, is typically a tax-free lump sum payment that can be used to cover various expenses, such as funeral costs, mortgage payments, debt repayment, and the financial well-being of dependents.
The term insurance vs. life insurance debate can go on. There is no right or wrong answer to the question. No matter which type of insurance you choose, ensure that you do your homework well and understand what these insurance policies include and exclude.
Comparing policies online can help you understand what is available and what suits you the best. A life insurance policy is very subjective to your requirements. Hence, study the available insurers carefully and decide by considering your needs.
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Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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