Term Insurance vs Life Insurance - What’s the Difference?

Key Differences Between Term Insurance and Life Insurance

Here is a comparison of key differences between life insurance versus term life insurance:

Let’s explore each of these points in more detail to better understand the differences between term insurance and life insurance.
 

Coverage

Term insurance offers financial protection only in the event of the policyholder’s premature death during the policy term. The nominee receives the death benefit if this occurs.

In contrast, life insurance covers both premature death and survival until the end of the policy term, offering broader protection.
 

Maturity Benefits

Term insurance generally does not offer any maturity benefits. If the policyholder survives the term, no payouts are made (unless opted with Return of Premium).Tata AIA Sampoorna Raksha Promise offers 100% return of Premium

Life insurance plans, on the other hand, offer maturity benefits if the policyholder survives the policy term. Some plans also include bonuses, guaranteed additions, or loyalty benefits.
 

Term Period

Term insurance typically offers coverage for 10 to 35 years, depending on the policyholder’s age and choice. Life insurance plans generally offer coverage for a shorter duration, usually between 5 and 30 years. Whole life plans may extend up to 100 years.
 

Flexibility

Life insurance plans are more flexible. They may offer options like policy loans, partial withdrawals, and plan customizations. Term insurance is less flexible. It usually cannot be altered once bought and does not include any savings or investment benefits.
 

Discontinuing the Policy

If premium payments are stopped for a term plan, it lapses without any surrender or paid-up value. There are no payouts. Life insurance policies usually acquire a paid-up value after a certain number of years. If discontinued, a reduced benefit or surrender value may still be available.
 

Premiums

Term insurance premiums are low and affordable since they offer pure risk cover. Life insurance premiums are higher as they provide both risk coverage and savings or investment benefits over time.
 

Bonuses and Additional Benefits

Term insurance plans do not offer bonuses like loyalty, terminal, reversionary, or accrued bonuses. Life insurance plans, however, may include these benefits. Both types of plans can offer life-stage benefits and riders, depending on the specific terms and conditions of the policy you choose.
 

Risk Coverage vs Savings

Term insurance provides only death benefits to the nominee if the policyholder passes away during the policy term. In contrast, life insurance offers both death benefits and a maturity benefit if the policyholder survives the term. Term insurance can be suitable for those looking only for risk protection, while life insurance suits those who want both protection and savings for the future.

Life insurance has become an essential tool for protecting the financial well-being of dependent family members. In recent years, there has been an increase in the number of people purchasing life insurance to create financial security for their loved ones.
 

What is Term Insurance?

Term insurance is a basic life insurance plan that offers coverage for a specific period, providing financial support to the nominee. During this period, the policyholder pays regular premiums, and in the event of their death, the beneficiaries receive a death benefit.
 

Types of Term Insurance Plans

Here are the types of term insurance plans one may consider before choosing a policy:
 

• Level Term Insurance Plan: The premium tends to remain constant throughout the entire policy term.
  
• Increasing Term Insurance Plan: The coverage amount may increase over time, often to keep pace with inflation or changing financial needs.
  
• Decreasing Term Insurance Plan: The coverage amount may gradually decrease over the policy term, typically aligned with a reducing liability, like a home loan.
  
• Convertible Term Insurance Plan: May offer the flexibility to convert the term plan into another type of insurance policy, such as a whole life or endowment plan, at a later stage.
  
• Term Insurance Plans with Riders: Allows you to potentially enhance your base policy by adding optional covers (riders^#), such as critical illness, accidental death, or waiver of premium. Tata AIA Sampoorna Raksha promise has additional rider options with affordable premiums.
  

What is Life Insurance?

Usually, when you buy life insurance plans, one part of the premium is used for providing death benefits, while the other part is saved to generate returns. The coverage offered may be considered more extensive than a term plan.

Types of life insurance plans

Here are the different types of life insurance plans you may consider before selecting a policy:
 

• Whole Life Insurance Plan: Provides coverage for the entire lifetime of the policyholder, ensuring protection beyond a specific term.
  
• Endowment Assurance Plan: Offers maturity benefits if the policyholder survives the policy term, combining life cover with savings.
  
• Money-Back Plan: Pays out maturity benefits in instalments during the policy term, providing ongoing financial support. The remaining benefit is paid at maturity as per policy terms.
  
• Child Plan: Designed to secure the financial future of the policyholder’s child, ensuring funds may be available for education, marriage, and other needs.
  
• Unit-Linked Insurance Plan (ULIP): Combines life insurance with market-linked investments, offering both protection and wealth creation potential.
  
• Pension Plan: Provides the policyholder with a regular income after retirement, ensuring financial stability during the post-working years.

Should You Opt for Term Insurance Or Life Insurance?

If you are looking for a basic insurance plan, a term insurance plan may be a suitable option because it offers coverage at an affordable cost. However, if you are looking for a more comprehensive cover or a plan that helps you build wealth along with protection, you may consider other life insurance plans.

Today, most insurance companies allow you to buy policies online, making it easier to compare different plans and providers. You may choose from a variety of Tata AIA life insurance plans based on your needs.

Tips to Decide Between a Term Plan and a Life Insurance Plan

Here are a few tips to decide between a term plan and a life insurance plan:
 

• Assess your current financial responsibilities, like loans, dependents, and lifestyle needs.
• Check your budget, term plans are more budget-friendly if you're just starting out.
• Consider your long-term goals, like retirement, child education, or wealth creation.
• Review flexibility and benefits like policy loans, surrender value, and bonus additions in life insurance plans.

Understanding these factors will help you know term insurance vs life insurance, which is better, and make an informed decision based on your personal and financial goals.