Life is full of uncertainties. It is thus important to have a good insurance policy especially for those who have family responsibilities.
Moreover, a life insurance policy would help your family in your unfortunate absence as it takes care of their future.
However, options in this space are too many with a lot of insurance policies.
We simplify the difference between term insurance and life insurance in this analysis. Let’s begin.
What is a Term Insurance Plan?
Term insurance is a type of policy that covers the risk of untimely death. In the unfortunate event of the death of the insurer, the policy thus guarantees to pay a death benefit to the deceased’s family.
Furthermore, it offers higher coverage at a smaller premium. Your family will consequently receive a bigger sum in your absence. Also, the insured person will not receive any benefits if they survive the policy term.
Types of Term Insurance
Depending on the type of benefits, the term insurance is thus as follows,
1. Level term plans
2. TROP (return of premium)
3. Increasing term plan
4. Decreasing term plan
5. Convertible term plan
6. Term plans with riders
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What is a Traditional Life Insurance Plan?
It is a policy that provides death benefits as well as maturity benefits. Moreover, the premium under this serves two purposes, namely, savings and life coverage.
Also, it is a contract between the insurer(company) and the individual, whereby the insurer pays a certain amount of money to the individual's family upon his/her death.
The customer thus keeps paying a fixed premium and upon their death, their family subsequently receives the insured money. Moreover, this is the preferred option for most individuals.
Types of Life Insurance
1. Whole life insurance
2. Money-back policy
3. Endowment plan
4. Unit-linked plans, etc.
Term Insurance vs Life Insurance Benefits
No prizes for guessing. These 2 plans confuse a lot of people. They are thus unable to decide which plan better suits them. We subsequently simplify them for the benefit of the readers.
1. Death Benefits: Term insurance subsequently provide a death benefit to the policy-holder, if they die within the policy period. No maturity benefit is provided. They can get back the paid-premiums if they opt for the TROP plan.
In contrast, a life-policy pays the customer's family the insured sum and bonus(if applicable), in the unfortunate event of the policy-holders death. Also, if the customer survives the policy period, they can subsequently claim the maturity benefits.
2. Coverage & Savings: Term insurance subsequently provides death benefits to the insured customer's family, but no maturity benefits. Thus, the premiums are lower in comparison to the Life insurance but the coverage is higher.
Furthermore, individuals who are only looking for death benefits should go for Term insurance. Whereas, individuals who are looking for long-term investment benefits in addition to death benefits, should choose Life-policies.
Continued,
3. Flexible: Term insurance policy is subsequently much more flexible as an individual can easily withdraw from it before the completion of the term. Moreover, the insured customer will simply have to stop his premium payments, which will consequently terminate the policy cover and assured benefits.
However, in the case of Life-policies, an individual will only be able to get back the paid-up premiums. Also, Term insurance is easily renewable and can be converted into endowment plans.
4. Surrender Value: Furthermore, the Term policy does not provide a surrender amount to the insured customer if they choose to terminate the plan.
Also, if the customer wants to get back his paid premiums, they can thus opt for a return of the premium term plan. The insured customer subsequently gets a surrender amount in case of Life-policy termination.
5. Tax Benefits: Both the policies consequently offer deductions under section 80C of the Income Tax Act,1961. Moreover, attractive features associated with each plan.
Table - Comparison
| Parameter | Â | Term Insurance | Â | Life Insurance |
| Premium | Â | Very low | Â | Higher than term insurance |
| Death Benefits | Â | Payable(without any maturity benefit) | Â | Payable along with maturity benefits. |
| Maturity Benefits | Â | Not payable | Â | Payable |
| Coverage | Â | Higher | Â | Lower |
| Surrender Value | Â | No surrender value | Â | Surrender value accumulated |
Which to choose?
The term plan consequently provides you the coverage in case of premature death. Thus, everyone should go for this plan. It thus guards your family financially in your absence.
However, both the term and Life insurance are subsequently different as they meet different purposes. One should thus carefully choose the plan that suits their needs. Moreover, Life insurance plans are further categorized as below,
| Type of Life Insurance | Â | Best suited for |
| Endowment plan | Â | Individuals with low-risk appetite and looking for a guaranteed amount. |
| Money-back plan | Â | Individuals with a low-risk appetite and looking for a guaranteed amount and also require liquidity over the plan term. |
| Whole life plan | Â | Those looking for a life-long cover. |
| Child plan |  | Parents looking to create a guaranteed corpus for their children’s future. |
| Unit linked insurance plan | Â | Investors with a high-risk appetite and looking to create wealth by diversifying investments. |
| Pension plan | Â | Individuals looking to create a retirement corpus. Wishing to get a regular payment post-retirement. |
Conclusion
You can never tell what tomorrow holds. It is thus important to have a life policy in place to meet the contingencies of the future. Moreover, a flood of choices confuses people. Term insurance provides death benefits to the policy-holder in case of their death within the term period but no maturity benefits are given.
The coverage is thus very high and the premium is very low. Life policy in comparison pays death benefits as well as maturity benefits on surviving the term period. However, the coverage is very low and the premium is higher.
Also, there are numerous plans within Life insurance and one should subsequently go through the details of each of them before picking the best.
Moreover, for those who are looking for liquidity assurance with insurance, money-back term insurance may thus come to their rescue. Furthermore, one should consult their financial advisor to thus make an informed choice that will be rewarding to you. Choose wisely for your future!
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