What Makes Life Insurance And Term Insurance Different?

Term insurance is a type of life insurance wherein premium is paid by the insured for a fixed period of time during which death benefits will be paid out in case the insured passes away. In case the policy matures, no benefits are paid out to the respective beneficiaries. Therefore, term insurance policies are sometimes called pure life insurance policies where you receive a high sum assured by paying a nominal premium for a fixed tenure. Individuals also receive flexibility when choosing sum assured or tenure.

Life insurance plans are complete insurance packages that provide flexibility in choosing sum assured, tenure etc. while providing survival and/or maturity benefits according to policy documents. In these policies, the premium may be collected for a specific tenure or throughout the life of the insured.

Difference Between Term And Traditional Life Insurance Policies

The difference between term insurance and life insurance are: 

• Premium

Term insurance policies can be availed by paying lower premiums than whole life policies.

Premium is constant throughout the policy tenure in case of whole life plans, while term insurance policies employ dynamic premiums when the term of the policy is set to be renewed. Premiums will not be refunded in any scenario in term insurance policies unless a genuine claim against death of the insured is made, in which case a hefty sum assured will be paid out. Whole life plans provide premium payouts in case the insured survives the policy tenure as selected while buying the policy.

Must read: What is the Best Age to Buy a Term Insurance Plan?    

• Tenure

Term plans offer fixed tenures during the course of which the benefits of the policy are applicable. Whole life has flexible tenures usually applicable till the insured reaches 100 years. Benefits will be paid out when the insured turns 100.

• Cash Value

In case of whole life terms, the premiums paid by you are invested in your protection fund as well as in other investment avenues. If the insurer makes profit on these investments, they declare a bonus a part of which is given to you. Term insurance does not have this feature.

The cash value that is built through your premiums in whole life plans can be utilized to receive loans at low interest rates. The interest is collected and kept by the company while the base loan amount is deducted from your sum assured. This does not affect future premium amounts. Term plans do not provide this benefit. Whole life plans act as both savings and protection plans while term insurance is a pure life insurance plan with no additional benefits apart from death benefits.

Concluding

If you are a married person with 2 kids, a mix of whole and term life represents a great choice. You can do this by buying a term rider on top of the whole life policy. On one hand, the whole life policy offers you cash value that can be used at various points of your life, while the term rider will protect your dependents with high monetary benefits.

Also read: Common Terms And Conditions Under A Life Insurance

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.