Term insurance and life insurance are essential financial instruments. Various types of life insurance plans, play an important role in meeting your financial goals and maintain a financial safety net.
As there are different types of life insurance plans, you must choose the right one that will be aligned with your life goals. A term insurance plan is the purest form of a life insurance plan that is used for the financial protection of the family.
So, what is the difference between a term insurance and life insurance? Let us understand the difference between these insurance plans, which will further help you to choose the right insurance.
Difference between Term Insurance and Life Insurance
Term insurance and life insurance are the two most popular insurance policies in India. While term insurance provides large coverage for a fixed duration, a life insurance policy offers lifelong coverage to the policyholders.
The purpose of a term insurance is to ensure that the dependents can continue their life financially unaffected by the demise of the policyholder. On the other hand, a life insurance plan would act as an asset in the later years of the life. The policyholder will get an opportunity to create a legacy for their younger generation.
While both these plans have their own set of benefits and limitations, it is essential to understand the basic nature of these policies so that you can choose the best one as per your financial needs.
1. Death Benefit
The principal benefit of a term insurance policy is the death benefit amount (sum assured). The death benefit is paid out to the nominee in case the policyholder passes away during the policy term. However, a term insurance plan does not have any maturity value. Thus, if the policyholder survives the policy term, the plan simply expires and does not give any amount in return.
A life insurance plan, on the other hand, has a death benefit and maturity benefit. It depends on the type of life insurance plan you choose. Some of the plans offer guaranteed benefits while some of the plans offer assured benefits.
2. Risk Covered vs Savings
Term insurance is a pure risk coverage plan. It helps you with a large sum of cover at affordable premium. With this plan, the policyholder can be ensured that their dependents have an adequate sum of money in case of their sudden demise.
However, if you wish to provide for your family’s or your future financial needs such as vacation, buying a home, higher education of your children, their marriage, etc. you can buy a life insurance cum savings plan. Such plans can help you save money to build a corpus for your future endeavors and even save for retirement.
Surrendering a term insurance plan is much easier as compared to a life insurance plan. You can simply stop paying the premium to stop policy benefits and the term plan lapses.
Life insurance plans, however, are assets with increasing value with each premium payment. Thus, you need to deposit every premium to ensure full maturity benefits. You can choose a shorter premium payment term to avoid long-term liability. For example, pay all the premiums within the first five years of the policy.
If you stop paying the premiums before completing the premium payment term, the life insurance will acquire a paid-up value. You can revive the policy within two years of this, or receive the surrender value which is usually a fraction of the paid-up value.
5. Premium Amount
Term insurance and life insurance premiums are different for the same amount of coverage.
For example, a term insurance policy with a cover of Rs 50 lakhs will have a premium of about Rs 7,000 per annum for a 30-year-old individual. A life cover of a similar death benefit would have a premium of Rs 1 lakh to Rs 5 lakhs per annum depending on the benefits.
Thus, if you want to provide adequate financial protection to your family, term insurance is the go-to solution. Life insurance plans, however, can safeguard individual financial goals for your family.
6. Tax Benefits
Both life insurance and term insurance plans qualify for tax benefits under sections 80C and 10(10D). Investments of up to Rs 1.5 lakhs in the life insurance or term insurance will qualify for deduction from your taxable income. However, since term insurance premium is usually lower you will need other investments to maximise the tax benefits.
Life insurance plans offer maturity benefits and cash flow options as well. These pay outs you receive from the life insurance plans are exempt from tax under section 10(10D).
|Term Insurance||Life Insurance|
|Death & Maturity Benefits||Only the death benefit is payable. Plan expires on maturity||A minimum guaranteed sum is payable as the death benefit. Maturity benefit is payable upon the expiry of the plan.|
|Risk Coverage & Savings||Provides a large coverage amount, does not have an investment value||Provides reasonable coverage and high savings and investment value|
|Flexibility||Simply stop the premium payments to close the policy||Premiums increase the policy value, and surrendering the policy reduces the policy benefits|
|Policy Term||Cover for 5 years to up to 99 years of age||Minimum policy term of 10 years up to lifetime (100 years of age)|
|Premium Amount||Only a nominal amount payable as the risk premium ranges between 0.1% to 1% of the death benefit||The annual premium can range between 3% to 10% of the death benefit|
|Tax Benefits||Premium eligible for deduction under section 80C||Premiums are eligible for tax deduction u/s 80C. Survival and maturity benefits exempt from tax u/s 10(10D)|
If you are looking for a policy that has the advantages of both these policies, you can opt for iSelect Smart360 Term Plan by Canara HSBC Life Insurance that offers comprehensive coverage at a minimum and flexible premium options along with return of premium option. That means your premiums will be paid back if you outlive the policy term. Secure your future with the right life insurance plan and protect your loved ones.
Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.