INFO: Difference between Term Insurance and Life Insurance – Which should you choose?
Insurance plays a crucial role in securing the financial future of you and your loved ones. However, while taking a life cover, it becomes important to make sure that you know the difference between life insurance and term insurance so that you can get full advantages of the product you are purchasing.
In fact, the distinction between term insurance and life insurance is often confusing. Let’s understand the differences between these two popular insurance products in India, enabling readers to make the right decision when choosing the coverage for their specific needs.
Understanding Term Insurance
Term insurance is a type of insurance policy that provides coverage for a specific term or duration, typically ranging from 5 to 30 years. It offers pure protection without any investment component. In the event of the insured’s untimely demise during the policy term, the beneficiaries receive a predetermined sum assured. Term insurance policies do not have any cash value or savings component, making them more affordable compared to other types of life insurance plans.
Life insurance, on the other hand, encompasses various types of policies that provide both protection and investment benefits. These policies combine life coverage with a savings or investment component, allowing policyholders to accumulate wealth over time. Life insurance policies may include endowment plans, whole life plans, money-back policies, or unit-linked insurance plans (ULIPs). They provide a death benefit as well as a maturity benefit, which is payable if the insured survives the policy term.
Adhil Shetty, CEO, Bankbazaar.com, says, “Understanding the difference between term insurance and life insurance is vital for individuals seeking financial protection. While term insurance offers pure protection, life insurance combines protection with tax benefits. By assessing their needs and long-term financial objectives, individuals can choose the insurance product that best aligns with their requirements, providing them financial security.”
1. Purpose: Term insurance primarily focuses on providing financial protection to dependents in the event of the policyholder’s death. Life insurance, in addition to the protection element, offers an investment component for wealth creation and other financial goals.
2. Premium: Term insurance policies generally have lower premiums as they offer pure protection. Life insurance policies typically have higher premiums due to the combined protection and investment features.
3. Policy Term: Term insurance policies have a fixed term, and coverage ceases at the end of the term unless renewed. Life insurance policies can have long durations, including the policyholder’s entire lifetime.
4. Cash Value: Term insurance does not accumulate any cash value or offer loan facilities. In contrast, life insurance policies may have a surrender value or offer loans against the accumulated cash value.
5. Maturity Benefit: Term insurance policies do not provide any maturity benefits as they focus solely on providing a death benefit. Life insurance policies, depending on the type, offer maturity benefits if the policyholder survives the policy term.
Choosing the Right Insurance
When deciding between term insurance and life insurance, it’s crucial to consider your specific financial goals and requirements. Term insurance is ideal for individuals seeking pure protection at an affordable cost, especially if they have financial dependents. Life insurance is suitable for those looking for protection along with long-term savings or investment opportunities. Evaluate factors such as premium affordability, coverage duration, financial goals, and risk appetite to make an informed decision.