Life Insurance vs. Term Insurance

Term insurance is a type of life insurance in which the insured pays a premium for a set period of time. Under this type, the nominees of beneficiaries receive a death benefit in the unfortunate event of the policyholder's demise. A term insurance policyholder does not get any maturity benefit upon the completion of the policy tenure. However, term plans provide comprehensive coverage for numerous mishaps like untimely death, critical illness, and disability. Here are more reasons to buy a term plan.

Benefits of Term Insurance

The following are the benefits of purchasing term life insurance:

• Financial Security: One of the most important reasons to buy term insurance is that it provides financial security to your loved ones in the event of your untimely demise. A term insurance company will pay a death benefit to the nominees of the policy and ensure that your family continue to live the same lifestyle you provide them.
• Multiple Death Benefit Payout Options: In term life insurance, the policyholder can choose to claim the death benefit in different payout options. You can either get the benefit in a lump sum or monthly like a regular income. Therefore, this will help your loved ones manage their financial needs appropriately.
• Enhanced Coverage: The policyholders can enhance the coverage of their term plan by including riders with their base policy. You may have to pay an additional premium to purchase riders such as critical illness benefit riders, a premium of waiver benefits, and more.
• Return of Premium Benefit: In some cases, term insurance policyholders can receive maturity benefits for their term plan. All you need to do is purchase a return of premium benefit rider along with your base term insurance plan.

Life insurance is a plan in which an individual pays a premium to the insurer at regular intervals in exchange for financial protection. Whole life insurance plans are affordable and allow you to plan for your long-term future without any hassle. The life insurance policyholders get both a maturity benefit upon the completion of the policy tenure and a death benefit in the event of the insured's untimely demise. Read on to find out the benefits of life insurance plans.

Benefits of Life Insurance

The following are the benefits of investing in life insurance plans:

• Accomplish Financial Goals: With life insurance, you can accomplish your financial goals like purchasing a dream home, starting a business, planning the future of your children, and more. Additionally, life insurance also provides peace of mind to the policyholders.
• Wealth Creation: The policyholders can invest in life insurance plans like ULIPs to create wealth and meet their future financial goals. ULIP are an insurance product that provides dual benefits of life coverage and investment to the policyholders. A portion of a premium paid by the policyholder is used for life insurance and the remaining is allocated to different funds of your choice.
• Start Saving Early: You can start your savings and investment at an early age with life insurance plans. In addition to inculcating a savings habit in you, it will help you in creating wealth and accomplishing long-term financial goals.
• Dual Benefits: Unlike term insurance plans, life insurance provides both maturity benefits upon the completion of the policy tenure and death benefits in case of the demise of the policyholders.

The table below highlights the difference between term and whole life insurance.

Term Insurance vs. Life Insurance: Term-Wise Explaination

Let us understand the above comparison factors in detail:

• Coverage: Term insurance plans only provide coverage in the event of the policyholder's early death. In most term plans, the benefit is paid only if and when the insured dies during the term of the policy plan. While this is the condition of returns in a term plan, policyholders in other forms of life insurance plans also receive a maturity bonus in addition to coverage from premature death.
• Premium: Because term insurance only covers the risk of death due to an early death, it has a low and cheap premium rate. You can readily purchase big-sum assured levels at these low rates and benefit from them. Other life insurance plans provide a wider range of coverage and also promise a higher variety of maturity benefits, resulting in higher premium rates.
• Policy Tenure: Term insurance policies provide coverage for a longer period of time, up to 30 to 35 years depending on the age of the policyholder. Other life insurance plans provide coverage for shorter periods of time, with terms ranging from 5 to 30 years.
• Flexibility: Term plans are less flexible than other types of life insurance since they lack a surrender value or paid-up value, as well as maturity benefits. Other than term policies, life insurance plans are flexible. They provide paid-up and surrender values, as well as the ability to take out policy loans.
• Paid-up and Surrender Values: Term plans have no paid-up or surrender values, which means that if the policyholder quits paying the premium, the plan would lapse and no coverage would be provided. Furthermore, no returns on the premiums paid would be received. Other life insurance plans provide some benefits to the policyholder even if the premiums are not paid. The sum promised that the policyholder would get would be reduced if the premiums were paid for a set minimum number of years and then discontinued, but the policy plan would continue. By surrendering the policy, the policyholder can voluntarily terminate it.

Both term and life insurance plans have their own meaning and relevance. Everyone should have term insurance because it protects them financially in the event of a premature death. However, understanding the differences between term and life insurance plans allows one to determine the most suitable and appropriate plan for themselves and their family.

Choosing between life insurance and term insurance can be tricky as both offer similar benefits, the only deal-breaker being the insurance policy's term length. To make it easier, here are a few factors to consider when choosing between the two.

*Cash Value: In Life insurance, Cash Value/Surrender Value/Policy Value component refers to the portion of an insurance policy premium that accumulates over time and incurs interest.

As is the case with any system, life insurance comes with its own set of drawbacks. Here are some of them.

• Higher Premiums For Older Citizens: The premium rates for life insurance go up as the policyholder ages. This is one of the biggest drawbacks of life insurance policies. All major insurers have this rule.
• Complex Policy Terms to Understand: Life insurance policy terms can be often difficult to understand for policyholders. They are filled with technical jargon, often making it difficult to interpret policy terms, increasing the reliance on life insurance agents.
• Potential Issues During Claim Settlements: Claims may be denied or reduced due to specific exclusions or conditions in the policy. Many policyholders experience difficulties in claim settlements, which can undermine the intended financial security.

Term insurance policies have their own set of disadvantages as there are advantages. Read on to understand more.

• No Cash Value: One of the biggest disadvantages of opting for a term insurance is that policyholders do not have the option of any savings during the entire term. There is no cash value accruing interest, thus making it a purely protective insurance policy. The final and the only amount one can expect to withdraw is the death benefit in the case of the policyholder’s untimely death.
• Temporary coverage: Term life insurance coverage is valid only till the term of the policy. Once the term is over, policyholders must renew the policy at higher premium rates or seek a new policy. This short-term coverage can be a major disadvantage for those seeking longer insurance protection.
• Potential For No Payout: If policyholders survive after the policy term expires, they are not eligible for any money-related benefit unless a term return of premium benefit is included in the policy terms. One has the option to convert it into a long-term coverage insurance policy, however, different rules apply to different insurers.