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Understand the Difference: Term Insurance Vs Life Insurance

dateKnowledge Centre Team dateJune 24, 2021 views242 Views
Term Insurance Vs Life Insurance | Best Life Insurance Plan

In today's modern era, it is essential to have an insurance coverage to dispense with all sorts of contingencies in life. Due to the proliferating requirement for life insurance plans in current times, there is an overabundance of insurance products in the current market.

However, picking the appropriate insurance policy according to your suitability relies on several determinants. Before moving ahead with it, things like your age, period of the policy, the number of dependents you have, the amount of insurance coverage you need should be considered.

Difference Between Term Insurance and Life Insurance

Having an insurance plan is the basis of sound fiscal planning. Hence, performing a little bit of research before making the ultimate decision will help choose the appropriate insurance policy. When talking about insurance in present times, term insurance and life insurance are the two most comprehensive and prevailing insurance policies.

While term insurance provides comprehensive coverage till a specific term, a life insurance policy offers lifelong coverage to the policyholders. While both these plans have their own set of benefits and limitations, it is essential to understand the basic nature of these policies.

Understanding the fundamental difference between them will ensure that you always make a prudent investment decision to secure your financial future. Hence, to assist you, we have outlined the difference between term insurance and life insurance on certain parameters.

1. Mortality Benefits

The biggest benefit of a term insurance policy is that the benefit amount (sum assured) is paid out to the nominee in case of death of the person insured during the policy term.

A life insurance plan has after death and plan maturity benefits for the policyholder. The sum granted as the mortality benefit in term insurance policies is considerably higher when compared to the maturity advantage granted by life insurance plans.

Even though numerous insurance buyers contemplate investing in life insurance plans to attain the twin advantage of life security and great returns on their investment, it is prudent to hold at least one term insurance policy. It presents a more substantial mortality benefit in a limited amount of insurance premium.

Understand what are mortality charges in ULIP.

2. Flexibility

Another important parameter of distinction between term insurance and life insurance policy is the flexibility of both these policies. Surrendering a term insurance plan is much easier when compared to giving up a life insurance plan.

In a term insurance policy, if a person insured stops paying for the premium of the insurance premium, the advantages of the term policy stop and the plan gets lapsed. On the contrary, in life insurance plans, the maturity advantage to the person insured is granted exclusively if the insured person concludes the complete span of the policy.

Suppose the policyholder gives up on the life insurance policy or closes the policy midway. In that case, they will not be entitled to reclaim the complete saving part of the plan as the policy provider will make some deductions as a penalty before providing you with the accumulated sum.

Hence, it won't be wrong to compare both these policies based on flexibility. Term policies weigh more and have better advantages. Furthermore, numerous term insurance policies are renewable and grant an alternative to transform this term plan into an endowment policy for the equivalent amount ensured with an expansion in the premium amount.

Learn what is a renewable term insurance policy.

3. Premium Sum

Even though a life insurance policy presents a wider array of advantages, if a person requires higher policy coverage under a life insurance plan, they will be required to spend a higher insurance premium amount. Consequently, because of this high sum of premium, numerous insurance users fail to receive adequate coverage.

Factors That Affect Life Insurance Cost

Furthermore, life insurance plans usually extend a moderate return on investment that ranges 5% to 7%, which decreases when the life insurance policy is surrendered.

On the other hand, term insurance policies are much more affordable than life insurance and render higher insurance coverage at a minimum expense. The main reason behind this reduced amount of premium for a term insurance plan is because a term plan covers the risk of early deaths.

4. Surrender and paid-up value

When it comes to term insurance policies, there is no surrender or paid-up value. If the policyholder stops paying the amount of set premium, the term policy will terminate, and the person cannot recover it once lapsed or terminated. And when the term plan gets terminated, the policyholder would not obtain anything even if they have paid previous premiums.

On the contrary, life insurance plans provide the person insured with some advantages even if premiums are delayed or discontinued. If the policyholder has made the payment for certain instalments of a life insurance policy and then discontinues the payment, then the policy will be regarded as paid-up.

Under a paid-up life insurance policy, the sum guaranteed would be subdued; however, the policy would proceed. One can further optionally cancel the life insurance policy by surrendering it, and when a person surrenders this policy, they will be entitled to receive a surrender value.

All the modern age investors need to comprehend that opting for a good insurance policy plays a pivotal role in saving funds for a secured future. Hence, one must always opt for both term insurance and life insurance plans. While a term plan presents a great ROI and life security, a life insurance policy can safeguard your family's financial future.

If you are looking for a policy that have the advantages of both these policies, you can opt for iSelect Star Term Plan by Canara HSBC Oriental Bank of Commerce that can offer you with comprehensive coverage at a minimum and flexible premium options. It offers return of premium. 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.

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Frequently Asked Questions (FAQs) for Life Insurance

The premium is one of the most important factors to consider before buying a policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age:It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chances of contracting diseases is low. Young people also opt for policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender:The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits:The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term:Policy terms are also taken into consideration by insurers while deciding the premium amount. Policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation:The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physicianâ s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence. There are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: An insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the policy, the insurance companies generally pay 80% of the total premiums paid.

Buying life insurance online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. Online insurance policies also offer higher benefits. Customers should, however, buy online policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one policy to increase the cover or avoid claim rejection. In case of multiple policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In the case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy life insurance, the insurance company asks for the nominee details. Only the person named as the nominee in the policy can cash out a life insurance policy in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in the case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term. The family receives the death benefit. In the case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment options are chosen the policy works as a source of regular income.

It is a popular misconception that life insurance is only for accidental deaths. A term life insurance plan like iSelect also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy life insurance in your early 20s because it’s is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy life insurance at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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