Difference between Term insurance Vs Life insurance
Life insurance provides financial protection. Its plan is to compensate against any financial loss suffered in premature death. The plans are designed in such a way that will be helpful in accomplishing your life goals with ease. For example, if you opt for a child insurance plan it will help you to create a secured financial corpus for your child. Likewise, there are also pension plans that will help you to create an earmarked retirement fund and provide a promising lifelong income. However, life insurance plans figure out a place in each and every aspect of your life and provide you with financial security.
When it comes to life insurance it comes in various ranges that constitute different kinds of life insurance plans. On the other hand, term insurance is also compared with different kinds of life insurance plans.
What is a term insurance plan?
Its an insurance plan that helps in covering the risk of any premature death. In premature death of the insured throughout the term of the policy, as it promises to pay for a death benefit. It also promises a high coverage at low premiums by allowing you to avail a high sum assured that will be meet your family’s financial requirements in your absence.
What are the other life insurance plans?
Term insurance is another type of life insurance plan amidst of others. Aside from the term insurance, a life insurance plans occur in further variants too. It includes the following:
- A whole life insurance plan
- An endowment assurance plans
- The money-back plan
- The child plan
- The unit-linked insurance plan
- The pension plans
The term insurance and life insurance:
There is a big difference When compared the two that can be outlined in the following:
When it comes to coverage term insurance plans it will provide you coverage only in case of premature death. Although, the majority of the term plans benefit is paid only if the insured dies at the time of the tenure of the plan.
Likewise, in the case of life insurance plans, it possesses a maturity benefit. Although these plans will only cover the risk of any premature death as they are also paying a benefit if in case the insured survives until the end of the policy tenure. However, in terms of coverage the term plans and further insurance plans are quite unalike.
Level term insurance plan:
It is where the sum that is assured remains constant during the tenure of the policy.
Increasing term insurance plan:
This implies when the assured sum of amount is increased during the tenure period.
Decreasing term insurance plan:
It is when the amount assured is decreased at the time of tenure.
Return of premium term plan:
It means where the premium is paid throughout the period of tenure and is also refunded back if in case the insured survives till the maturity period.
When it comes to the term plans they are divided into various variants based upon the coverage that is provided. The main goal of these variants remains the same, which is by providing financial security or an income replacement.
On the other hand, life insurance contains different variants that will help in fulfilling your diverse life goals. When it comes to an endowment plan, it allows you to produce wealth by guaranteed returns. In contrast, on the other the money-back plans help in creating your liquidity. The child plans are promised a corpus for your child even if you are dead, while the unit-linked plans will help you gain the investment returns. It solely depends on you what you select from these different plans based on your life goals.
The premium term:
When it comes to this insurance plan it provides by covering only the risk of premature death. It also contains extremely low and as well as affordable premiums. However, you can also easily purchase a high sum which is assured by levels at affordable premiums. And, with the other life insurance plans, it contains a wider scope of coverage as they also are promising a maturity benefit. The premiums are considered higher than the term plans.
The coverage duration:
When it comes to a term plan it comes with a long term coverage duration that will easily go up to 30 or 35 years. However, in other kinds of life insurance plans, it can easily be opted for a shorter duration as well with the tenure starting from 5 years, and it can extend up to 30 years.
The Paid-up and surrender:
In this term plan, there is no paid-up value or even a surrender value. If you wish to discontinue paying the premium plan, it will lapse. If you are unable to revive it then the coverage would also be terminated. And, when coverage is terminated, you will not receive anything in return for premiums that are already paid.
Likewise, when it comes to other life insurance plans, you will receive some added benefits even if the premiums have been discontinued. If case you have paid the premium for a stipulated minimum number of years, then you can discontinue the premiums as your policy will turn into a paid-up. And, in a paid-up policy, the amount that is assured will be reduced, but the policy will be continued. You can also easily and voluntarily terminate the policy just by surrendering it. And, once you surrender, you will avail surrender value.
The bonus and any other insertion:
When it comes to this plan, there are no bonuses or any other kinds of insertion to this plan. In case of premature death, the amount assured is paid. Although, in other kinds of life insurance plans, such as an endowment, money back or even child plans, you can easily avail yourself of bonus insertions, loyalty insertions or even guaranteed insertions, etc. However, these insertions can always enhance the policy benefits.
The flexibility term plan:
It is a term plans they are completely firm in sense, don’t meet any paid-up or obtain a surrender value and also don’t have to pay any maturity benefits. Likewise, life insurance plans are flexible. Although, a traditional life insurance plan tends to promise for a paid-up value and surrender value. You can also easily avail the policy of loans under such plans. However, if you select ULIPs, then you will be able to withdraw partially, switch or even pay additional premiums.
Differences based on Term and Life insurance:
|Difference||Term Insurance||Life Insurance|
|The coverage||Premature death is only covered||Premature & survival policy is covered|
|The premiums||It’s extremely low & affordable. It is the cheapest form.||It is higher compared to the term.|
|The maturity gain||Is generally not payable.||It is payable in most plans.|
|Death advantage||It is payable.||It is payable in all plans.|
|The term||It generally ranges from 10 years to 35 years.||It varies from 5 to 30 years.|
|The paid-up or Surrender||Doesn’t require any paid or surrender value.||In case premiums are discontinued after stipulated years, the plan will acquire a paid-up value & if it is surrendered then the surrender amount is paid.|
|The flexibility||It’s not flexible||It’s flexible|
Similarities between term & life insurance:
The one and only similarity between the two insurance plans is tax benefits. In both of these plans, which are premiums paid, are allowed as a deduction under the Section of 80C up to Rs.1.5 lakhs. However, the death or the maturity benefit that is received is tax-free under Section 10D.
Which must you select between term & life insurance?
Selecting one plan over the other plan will be a mistake. When it comes to term and life insurance plans, they both obtain their own relevance. In a term insurance policy, it is a must for all as their requirements of financial security are against the possibility of premature death. Term insurance plans must be purchased by everyone. Likewise, with other life insurance plans, the target audience must be the following:
|Kinds of Life insurance plans||Target audience|
|The endowment plan||People who obtain a low appetite & create a guaranteed corpus.|
|The money-back plan||People who obtain a low appetite & create guaranteed corpus but also require liquidity over the term plan.|
|The whole life plan||People searching for lifelong cover.|
|The child’s plan||Parents who wish to develop a corpus for their child’s future.|
|The unit-linked plans||Investors with high-risk appetite & who wish to maximise wealth along with market-linked returns.|
|The pension plan||To develop a retirement corpus or series of regular income post-retirement|
A term insurance plans are unique from life insurance plans. So, you must ensure and be aware of the difference between term and life insurance and then only select the best plan for yourself that covers all your needs. Term insurance contains as a universal requirement and must not be missed. However, the other kinds of life insurance plans must assess to your financial goal and then alone select a plan that matches your requirements.