Insurance policy is considered to be a crucial investment tool for more than one reason. However, the benefit of the insurance depends largely on the type of policy. This is why individuals must know the key differences between a life insurance policy and a term plan to make the most of their accompanying features. Typically, a life insurance policy is designed to ensure the financial safety and security of the insured’s family in case of their untimely death or disability. However, a term policy is considered to be a goal-driven investment tool.
Read along to know more about the term life insurance policy and term plan in detail and understand the parameters that set them apart.
Life Insurance Plan in a Brief
Life insurance is considered to be an effective means to protect one’s family’s financial future in case of the insured’s untimely death. Such a policy is designed to provide them with lifelong coverage for the policy buyer and their dependents. Many life insurance plans come with a death benefit which is extended to the plan’s beneficiary in case of sudden death of the insured due to accident or illness.
Since a term life insurance policy serves as a financial safety net for the insured, and especially their loved ones, it is crucial to opt for extensive coverage. A high amount of death benefit or survival benefit will help tide over financial obligations or goals and allow the dependants to continue leading a comfortable lifestyle or account for the liabilities without being financially strained.
Term Insurance Plan in a Brief
A term insurance policy is a contractual agreement that guarantees the policy buyer a certain sum for a set period of time. The policyholder is required to pay a premium for this insurance coverage, but will not be required to pay anything during the period.
Term insurance is a less expensive insurance plan that may be acquired for a pre-determined period. Additionally, most term insurance policies offer a minimum assured sum. This implies that the insurance company commits to pay at least this amount even when no claim is filed or an event covered under the insurance plan occurs during the active term.
Difference Between Term Insurance and Life Insurance
Life insurance policy financially protects you and your family in the event of your death, whereas a term insurance policy covers you for a specific period of time. When compared to life insurance policies, term insurance plans are often less expensive. This suggests that if you die while the insurance is in operation, your family’s financial standing will not be strained. Above all, a term insurance plan is crafted in tune with the policy buyer’s needs and can help the dependent family members to tide over the financial crisis arising out of their personal loss.
That said, the key differences between life insurance and a term insurance policy are discussed below:
| Parameters | Life Insurance | Term Insurance |
| Coverage | Only premature death is covered | Premature death and survival is covered until a specific tenure |
| Premium amount | Higher premium amount | Affordable premium amount |
| Tenure | 5-30 years | 10-35 years |
| Maturity benefit | Most likely to pay | Not likely to pay |
| Death benefit | Payable | Payable |
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- Coverage: In case of life insurance, the beneficiary of the policy receives a death benefit, whereas, in the case of term insurance, the policyholder gets a monetary incentive. Term insurance also covers the insured’s early death within the time period stated in the policy agreement. Life insurance, on the other hand, covers both premature death and survival of the policy buyer until the policy’s maturity.
- Coverage Period: Life insurance covers the insured for a specific period, say 5-30 years, whereas term insurance covers the policy buyer for up to 35 years.
- Premium: Life insurance premiums are often higher than term insurance premiums since the former plan covers the insured’s whole life. Individuals can use life insurance or a term insurance calculator to determine the accompanying premiums of different plans under each type of insurance. This will also help understand which plan suits the budget the most and also helps meet financial objectives.
- Paid up and Surrender: In case of term insurance policies, individuals do not receive any paid-up value or a surrender value. Alternatively, in life insurance policies if the policyholder discontinues the premium after a given period, the plan acquires a certain paid-up value. If the policyholder chooses to surrender after that period, a surrender value is then paid out.
- Flexibility: Life insurance plans are known to offer more flexibility when compared to term life policies. This is because term insurance plans do not have a surrender value or paid-up value. It also does not extend any maturity benefits.
- Bonus and more: After the policyholder has paid the premiums for at least a year, most life insurance providers will add a bonus to their insurance policy. However, term insurance plans often do not include any bonuses or added perks. Under term insurance plans, the basic sum assured is paid out if the policyholder dies. Alternatively, other life insurance policies provide bonuses, guaranteed add-ons, loyalty add-ons, and other perks.
Which Insurance Type Should I Choose?
The first thing that an individual must do to decide whether they should choose a term insurance or a life insurance plan is to identify their needs.
In case an individual intends to build a corpus to secure their family’s financial future, they may consider getting a life insurance policy. On the other hand, if an individual plans to invest money into an insurance plan for a specific period and pay the premium only once or a certain number of times, they may invest in a term insurance policy.
Once they figure out their need, they may proceed to purchase an insurance plan that will help them build a corpus or safeguard their family’s financial future with ease.
Individuals can also use an insurance premium calculator to determine which insurance policy will help them build a robust corpus at minimal premiums. Based on this key information, they may proceed to make an informed choice with regard to a term life insurance policy or a regular term insurance plan.
