Permanent Life Insurance or Term Life Insurance -- All You Need To Know

There are different types of policies provided by insurance providers to meet distinct needs and requirements of individuals. The two kinds include a permanent life insurance policy and a term life insurance policy. Read on to find about each one in detail so that you can choose the most appropriate plan for yourself in the end. 

What is a Permanent Life Insurance Policy?

As the name suggests, a permanent life insurance policy offers coverage throughout the life assured's life. The permanent insurance policy can be further divided into two plans.

• Whole Life Insurance Policy - Under this, life coverage for the entire life of the life assured is offered, even if he lives up to 100 years. Moreover, the increasing component of the policy's cash value can be withdrawn anytime, even to avail a loan sometimes. However, if the life assured dies before the loan repayment, a reduced death benefit will be paid to the beneficiary.
• Endowment Plan - Under this, a two-fold benefit of a life cover and savings are enjoyed by the life assured. According to this plan, the maturity benefit is paid to the life assured or the nominee after the policy duration ends. However, the beneficiary will be paid a sum assured along with some bonus estimated through the years the life assured lived within policy duration if the policyholder dies. 

What is a Term Life Insurance Policy?

Term life insurance policy provides the beneficiary with the lump sum death benefit if the life assured passes away within the policy duration. The beneficiary can also enjoy a monthly income that will act as income replacement. However, a term insurance policy is for a fixed term only and does not offer maturity benefits. The policy can be further classified into 3 plans:

• Level Term Life Insurance - Under this, the amount of death benefit throughout the policy duration and payable premium after renewal stays the same.
• Decreasing Term Life Insurance - Under this, the death benefit reduces with time in contrast to the payable premium that remains constant even after the renewal.
• Increasing Term Life - Under this, the life cover and the premium amount rises with time.

Difference Between a Permanent Life Insurance Policy and a Term Life Insurance Policy

Here are some points of difference between a permanent life insurance policy and a term life insurance policy.

• Policy Duration - This is the most basic point of difference between a permanent life insurance policy and a term life insurance policy. A permanent life insurance policy is applicable for the entire life of the life assured whereas a term life insurance is valid only for a specific duration. 
• Premium - The permanent insurance policies have higher premium rates than term life insurance plans because of additional benefits of permanent life insurance policies such as cash value and saving benefits.
• Coverage - Through the endowment plan of the permanent life insurance policy, a life assured can enjoy life cover along with savings. On the other hand, a term insurance policy only provides a life cover.
• Maturity Benefit - The permanent life insurance policy provides maturity benefits at the term-end compared to term life insurance policies. 

Similarities Between a Permanent Life Insurance Policy and a Term Life Insurance Policy

Both the policies provide tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, and offer tax savings on payable premium and tax exemption on death benefits, respectively.  

Which Policy Should You Choose? 

As mentioned above, both policies have their own benefits. You should purchase the most suitable life insurance policy after careful study and thorough comparison of the terms and conditions of different policies. You can even consult a financial advisor or an insurance agent to help evaluate the sum assured and policy duration according to your needs.

You may also like to read - Term Insurance vs Traditional Life Insurance: Benefits Compared