Difference Between Term Insurance and Life Insurance

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Difference between Term Insurance and Life Insurance

Term Insurance Quote
  • 16th Jun 2022
  • 6,611

Difference between Term Insurance and Life Insurance

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

may be unfathomable but in case it happens, at least the financial part of the burden is taken care of by the insurance policy.

Life insurancepolicies 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 you may be concerned about is that should you buy term plan or whole life insurance? It is important to understand the features, benefits, and differences between both of them before making a decision on which to pick.

What Is Term Insurance?

A term insurance policy is a policy, which offers a death benefit to the beneficiary in case of the death of the policyholder. However, if the policyholder survives, the entire term of the insurance, the policy does not offer any maturity benefit. 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 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 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 will 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 exempt 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 40, it is recommended that you go for whole life insurance, as you may have more responsibility towards your family such as children’s education. You will need higher financial security. As the premium is quite high, many people think twice before choosing this insurance.

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 choosing a term or whole life insurance remains unanswered. If you opt for a term insurance policy, you can avail an attractive premium rate for a fixed period of time but there will be no maturity benefit available in the policy. But if you choose whole life policy then you will be able to enjoy protection for an extended period and get a maturity benefit though the premiums could go heavy on your pocket. For example, a youngster in his early twenties could initially opt for a term insurance plan to save on premium amount in his early years and then go for a whole life insurance plan after a few years when his responsibilities increase.

Difference between Term and Whole Life Policies

Here are some key differences between a term plan and a whole life policy 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 policy term in a whole life plan but it may change for a term plan as it nears maturation
  • By getting Return of Premium Option (TROP) in a term plan, you can get all your premiums refunded back if you survive the policy term which is not possible with a whole life policy
  • 2.Tenure of the Policy

  • Whole life policy has a flexible tenure which can be extended up to 100 years whereas, in term plans, the policy term remains fixed during which 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 favorable option when compared to a personal loan but a term plan doesn’t have a loan feature
  • Along with a life cover, whole life policy also provides you with a maturity benefit to fulfill 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.

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 understand what is available and what suits you the best. 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.

- A Consumer Education Initiative series by Kotak Life

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