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Term Insurance vs Life Insurance: Understand the Difference and Benefits

Term insurance and life insurance are two different types of insurance policies that provide financial protection to individuals and their families in the event of an unexpected death.

  • Jun 16, 2022

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 them before making the right decision.

Key takeaways

  • The premiums paid towards term insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act, 1961.
  • Since term insurance provides coverage for a fixed period of time, the premiums are generally lower compared to other types of life insurance policies.
  • The premium amount is based on several factors, including the age, health, and lifestyle of the insured person, as well as the amount of coverage desired.
  • While whole life insurance can be a good investment for some people, term life insurance is generally the better choice for most people.

With the cost of living skyrocketing by the day, insurance policies come as a blessing as they ensure that our family is secure in the future against an unfortunate event. Accidents or other calamities do not come with a warning. It might not be possible to avoid them, but we can certainly ensure that our family is equipped to deal 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 incidents, at least the financial part of the burden can be taken care of by the insurance policy.

Term vs. Life Insurance: An Overview

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.


Term Life Insurance

Life Insurance


Provides coverage for a specific term.

Provides coverage for the insured’s entire life.


Typically lower but may increase as the insured ages or if they renew their policy.

Typically higher, but remain the same for the life of the policy.

Cash Value

Does not accumulate cash value.

Builds cash value over time, which can be borrowed against or used to pay premiums.

Death Benefit

Pays out a death benefit if the insured dies during the policy term.

Pays out a death benefit whenever the insured dies, as long as premiums are up to date.

Suitable For

People who need coverage for a specific period of time, such as while they have dependents or a mortgage.

People who want coverage for their entire life and may also want to build cash value.

Term Insurance vs Life Insurance

Features of Term Insurance

Term insurance is a type of life insurance that provides coverage for a specific period of time. It is designed to provide financial protection for your loved ones in the event of your untimely death. 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.

Here are some of the key features of term insurance that you should be aware of:

Affordable Premiums

Term insurance is one of the most affordable types of life insurance policies available in the market. Since it provides coverage for a fixed period of time, the premiums are generally lower compared to other types of life insurance policies.


Term insurance policies are highly customizable, allowing you to choose the coverage amount and the term period that best fits your needs. You can also opt for additional riders, such as accidental death benefits, critical illness coverage, and disability benefit, to enhance your coverage.

Pure Protection

Term insurance is a pure protection plan, meaning it only provides coverage in the event of your death. There is no savings or investment component associated with term insurance policies. This makes term insurance an ideal choice for individuals who are looking for affordable and straightforward life insurance coverage.

High Coverage Amount

Since the premiums for term insurance policies are lower compared to other types of policies, you can afford to purchase a higher coverage amount. This is particularly beneficial if you have a large family or dependents who rely on your income.

Tax Benefits

The premiums paid towards term insurance policies are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. Additionally, the proceeds received from the policy are tax-free under Section 10(10D) of the Income Tax Act, making term insurance a tax-efficient investment option.

Features of Life Insurance

Life insurance is a financial product that provides protection to individuals and their loved ones in the event of an unexpected and unfortunate event like death or disability. Life insurance policies are designed to offer financial assistance to the beneficiaries of the insured in case of their untimely demise. While life insurance policies come in various forms, they all share some common features that make them valuable tools for financial planning.

The following are some of the key features of life insurance:

Death Benefit

The death benefit is the amount of money that the insurer pays out to the beneficiary upon the death of the insured person. It is typically paid out tax-free and can be used to cover expenses such as funeral costs, outstanding debts, and living expenses for surviving family members.


These are the payments the policyholder makes to the insurer in exchange for coverage. The premium amount is based on several factors, including the age, health, and lifestyle of the insured person, as well as the amount of coverage desired.

Policy Term

The policy term is the length of time that the life insurance policy remains in effect. It can be a permanent policy that lasts for the insured person’s entire life.


Riders are additional features that can be added to a life insurance policy for an extra cost. Common riders include accidental death and dismemberment coverage, long-term care coverage, and disability income riders.

Drawbacks of Life Insurance

While life insurance can be an important financial tool for protecting your loved ones, there are also some potential drawbacks to consider. Here are four of the most significant cons of life insurance.


The most significant drawback of life insurance is the cost. Life insurance premiums can be expensive, especially for those who are older or have pre-existing medical conditions. The premium payments can be a significant financial burden, especially for those with tight budgets.


Another significant drawback of life insurance is its complexity. Life insurance policies can be difficult to understand and navigate, with many different types of policies and options available. It can be challenging to determine what policy is right for a particular individual or family, and the details of the policy can be difficult to interpret.


Life insurance policies may have exclusions that limit the coverage provided to beneficiaries. For example, if a policyholder dies due to suicide or as a result of a criminal act, the policy may not pay out to their beneficiaries.

Delayed Payment

Finally, life insurance policies may have a delayed payment timeline, leaving beneficiaries without the needed funds in the immediate aftermath of the policyholder’s death. Some policies require an investigation into the circumstances of the policyholder’s death, which can take time, delaying the payment of the policy’s benefits.

Is Term Life Better than Whole Life?

While whole life insurance can be a good investment for some people, term life insurance is generally the better choice for most people. It’s more affordable, easier to understand, and more customizable, and it provides coverage when you need it most. When shopping for life insurance, be sure to compare both term and whole-life policies to determine which one is the best fit for you and your family.


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.



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 a 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 my Money Back with Term Insurance?

Plans for term insurance do not provide maturity benefits. However, with a term insurance plan with a 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

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- A Consumer Education Initiative series by Kotak Life

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