Insurance is an important tool to secure your loved ones’ future. Among the most common types are term insurance and life insurance. While both offer financial protection to your family, they work in different ways. Before you finalise what kind of coverage you want, it is important to understand the distinction between the two. Let’s explore what term and life insurance mean and the main differences between them.
What is Term Insurance?
Term insurance is a pure protection plan. It provides life cover for a specific period, i.e., around 10, 20, or 30 years. If the policyholder passes away during this term, the nominee receives the death benefit (sum assured). However, if the policyholder survives the term, there is no maturity or return benefit. Some plans may come with a return of premium feature, where you get the premiums refunded if you outlive the end of the term.
The main aim of a term plan is to offer high coverage at a low cost. It is considered the most affordable and straightforward type of insurance. You can use a term insurance premium calculator to check how much premium you need to pay based on your age, income, and sum assured. If you are looking for the best term insurance plan, opt for one that offers flexible tenure, claim settlement ease, and rider options.
What is Life Insurance?
Life insurance is a broader term that includes products offering a life cover, which may come with savings or investment components. These plans not only offer a death benefit to the nominee in case of the policyholder’s demise but also provide a maturity benefit if the policyholder survives the policy term (endowment plans or ULIPs) or payouts during the plan (money-back policies).
Examples of life insurance include endowment plans, whole life insurance, money-back plans, and Unit-linked Insurance Plans (ULIPs). These policies are suitable for individuals looking to save (or invest) over the long term while staying insured. Though the premiums are higher compared to term plans, they offer the advantage of building a financial corpus over time.
Key Points of Difference Between Term Insurance and Life Insurance
Are you wondering which to choose – the best term insurance plan or the best life insurance in the market? The following points of difference will help you choose between the two:
| Parameters | Term Insurance | Life Insurance |
| Purpose | It is purely for financial protection. | It combines protection with savings or investment. |
| Payouts | Only pays the death benefit if the policyholder passes away during the term. | Pays the death benefit and also offers maturity benefits if the policyholder survives. |
| Premium Cost | Affordable and offers higher coverage for lower premiums. | Comes with higher premiums due to the savings component. |
| Policy Term | Covers a specific period. | Can offer coverage for a fixed term or even lifetime coverage (whole life). |
| Returns | Offers no returns unless you opt for return-of-premium variants. | Offers returns through bonuses, savings accumulation, or market-linked gains. |
| Ideal For | Those who want life insurance coverage at an affordable rate. | Those looking to build savings with insurance over a longer period. |
The right choice between term insurance and life insurance will depend on your financial goals and current life stage. Term insurance is best for those looking for affordable protection while life insurance is ideal for those looking to combine security and long-term savings. Use tools like a term insurance premium calculator to compare and choose the best term insurance plan for your family’s future. Whatever you choose, ensuring financial safety for your loved ones is always a wise decision.