Term Insurance vs Life Insurance: Understand the Difference
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Term Insurance vs Life Insurance: Understand the Difference and Benefits

Term Insurance vs Life Insurance: Understand the Difference and Benefits
  • 16th Jun 2022 |
  • 10,432

With the cost of living skyrocketing by the day, insurance policies come as a blessing as they ensure that our family is secured for the future during an unfortunate event. Accidents or other calamities do not come with a warning. It might not be possible to avoid them, but it is in our hands to ensure that our family deals with their aftermath. Gone are the days when people thought that insurance was not necessary. Today, it is necessary, not only for you but for your loved ones also.

Losing a loved one may be unfathomable, but during such an incident, at least the financial part of the burden is taken care of by the insurance policy.

Life insurance policies can be of two types - whole life insurance policy and term insurance policy. There has always been a debate about term insurance vs life insurance. The most important question that may arise is, “should you buy a term plan or whole life insurance?” It is important to understand the features, benefits, and differences between both them before making the right decision.

What is Term Insurance?

Term insurance is a policy which offers a death benefit to the beneficiary in case of the death of the policyholder. One of the main advantages of the term insurance policy is that the premium is very affordable and can be bought by most people. Hence, this policy attracts many young buyers who are just starting their careers and have a lot of financial responsibilities and milestones to achieve in life. The later you opt for a term insurance policy, the more you need to pay as a premium. The increasing premiums, as well as the no maturity benefit feature, are the factors that make consumers hesitate before opting for this type of insurance, especially if they are looking for a long-term savings plan.

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What is Whole Life Insurance?

A whole life insurance policy is also known as a permanent insurance policy. You have to pay a higher premium as compared to the premium of a term insurance plan. The advantage here is that the premium amount is fixed. In addition, along with the death benefit, you also get income benefits, as the cash amount that is accumulated over time is exempted from taxes. This amount can be used at the discretion of the owner of the policy. You could use this amount for retirement planning or for paying the future premiums of your insurance. If you are in your late 30s or above 40s, it is recommended that you go for whole life insurance, as your family might be dependent upon you.

Term Insurance vs Life Insurance

There are a large number of insurance providers in the market, no matter which type of insurance you are looking to purchase. So, the question of term insurance vs life insurance still remains unanswered. If you opt for a term insurance policy, you can avail of an attractive premium rate for a fixed period of time, but there will be no maturity benefit available in the policy. On the other hand, if you choose a life insurance policy, then you will be able to enjoy protection for an extended period and get maturity benefits as well. For example, a youngster in their early twenties can initially opt for a term insurance plan to save on the premium amount in the early years and then go for a whole life insurance plan after a few years for a secure future.

Difference between Term and Whole Life Policies

Here are some key differences between term vs whole life policies that you should know:

1.Premium of the Policy

  • You can buy a term plan at a lower premium rate which cannot be done with a whole-life policy.
  • The premium amount remains constant through the entire whole life policy, but it may change for a term insurance plan.
  • By getting The Return of Premium Option (TROP) in a term plan, you can get all your premiums refunded if you survive the policy term, which is not possible with a whole-life policy.

2.Tenure of the Policy

The whole-life policy has a flexible tenure which can be extended up to 100 years, whereas, in a whole-life policy, the policy term remains fixed during the benefits of the policy are applicable.

3.Cash Value of the Policy

  • You can avail a loan against your whole life policy during emergencies as they are a favourable option when compared to a personal loan, but a term plan doesn’t have a loan feature.
  • Along with a life cover, a whole life policy also provides you with a maturity benefit to fulfil a long-term savings plan, whereas a term plan only has a death benefit and no maturity benefit.
  • If you opt for a Unit-Linked Whole life policy, some part of your premiums will be invested by the insurer, and the benefit received from it will be given to you. But this investment component is not available for a term plan.

Difference between Term Insurance and Life Insurance

Let’s understand the difference between term insurance and life insurance with the help of a simple and easy to comprehend table:

Parameter

Term Insurance

Life Insurance

Tenure

The tenure of term insurance ranges from 5-30 years. Kotak e-Term Plan covers a maximum of 57 years.

The tenure of term insurance ranges from 10 to 50 years and can go up to 100 years of policyholder’s age in the case of whole life insurance

Coverage

Covers premature death of the policyholder within the tenure specified in the policy document.

Covers both premature and survival till the maturity of the policy

Premium

Premiums are low and affordable, usually considered the cheapest insurance plan in India.

Since coverage is for life, the premiums are higher compared to term plans.

Death Benefits

Death benefit is payable only if the policyholder passes away during the tenure of the policy.

The death benefit is payable under both conditions: policyholder survives till maturity or passes away during the tenure.

Maturity Benefit

Usually, the maturity benefit is not payable.

Maturity benefit is payable under most types of life insurance plans.

Paid-Up Value

Does not acquire any paid-up or surrender value

When premiums are discontinued and a paid-up value is acquired. If the policyholder surrenders the policy, a surrender value is paid.

The term insurance vs life insurance debate can go on. There is no right or wrong answer to the question - should you buy term or whole life insurance? No matter which type of insurance you choose, ensure that you do your homework well and understand what both of these insurance policies include and exclude. Comparing policies online can actually help you understand what is available and what suits you the best. A life insurance policy is very subjective to your personal requirements. Hence, study the available insurers well and make an informed decision by keeping your personal necessities in mind.

Frequently Asked Questions (FAQs)

What is the difference between a term plan and life insurance?

The biggest difference between term insurance and regular life insurance is that term insurance only provides a death benefit in the event that the insured dies within the term period. Regular life insurance provides both death and maturity rewards to the insured.

Term insurance or whole life insurance - Which is better?

Comparing a whole life policy to a term life policy has numerous advantages because whole life policy is permanent, includes a cash value investment component, and offers additional options for long-term financial protection for your family.

At what age should I buy term insurance?

Since people do not yet have many responsibilities and the premiums offered by the insurance companies are on the cheaper side, it is always advantageous to purchase life insurance when one is in their early 20s.

Can I get money back with term insurance?

Plans for term insurance do not provide maturity benefits. However, with a term insurance plan with return of payment, the policyholder can receive a full refund if they live longer than the policy term.

Are premiums of life Insurance plans flexible?

Both savings advantages and a death benefit are provided by whole life insurance. When you choose to terminate (surrender) the policy, you receive a lump payment. The policy is valid for your entire life. Additionally, you can determine the frequency of your premium payments and withdrawals with whole life insurance policies.

Kotak e-Term Plan

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Features

  • Nominal Cost
  • Multiple Plan Options
  • Flexible Payout Options
  • Critical Illness Rider
  • Tax Savings
  • Long term Coverage

Ref. No. KLI/22-23/E-BB/492

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