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

Compare Term Insurance vs Life Insurance

09/01/2025 |

Key Differences Between Term Insurance and Life Insurance

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

 

 

Term Insurance

Life Insurance

Features

Affordable and provides pure protection for a specific time

Combines insurance and savings.
Offers lifetime coverage.

Coverage

Specific term or period (e.g., 10, 20, or 30 years)

Provides lifelong coverage

 

Maturity Benefits

A basic term insurance policy offers no maturity benefits to policyholders.Financial protection of family is the main objective

Most life insurance plans offer maturity benefits to policyholders.

Term Period

Usually, a term insurance plan tends to be available for a tenure of 10 to 45 years

Typically, the term of a life insurance policy may be between 5-30 years. In whole life insurance plans, the coverage is for the entire duration of your life.

Flexibility

Some insurance companies may also offer add-on covers/riders# that allow policyholders to potentially enhance the coverage and benefits of their policy.

Apart from add-on covers, you may also get loans on your insurance policy and request partial withdrawals with life insurance plans.

Discontinuing the policy

Discontinuing a term insurance policy tends to be straightforward. Once you stop paying the premiums, the policy automatically lapses.

To receive the full maturity benefits, you must complete the entire policy term. Withdrawing earlier may result in deductions by the insurer before the benefits are paid out.

Premiums



Premiums are low

Requires higher premiums

 

Premiums are high as compared with term insurance

Bonuses & Additional Benefits

Offers no additional benefits and bonuses.

Offers several bonuses and additional benefits, depending on the type of plan

Risk Coverage and Savings

Provides only risk coverage

Provides both the risk coverage and savings components

 


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?

Choose Between Term Insurance and 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.

 


 

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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FAQs on Term Insurance vs Life Insurance

What are the key differences between life insurance and term insurance?

The main difference is that life insurance covers the entire lifetime of the policyholder, while term insurance provides coverage for a specific period and only pays a benefit if death occurs during that time.

Which is a suitable option: term insurance or life insurance?

Term insurance offers higher coverage at lower premiums, making it suitable for financial protection. Life insurance includes death and maturity benefits. The choice depends on your financial goals and personal needs.

Is it possible to have both term insurance and life insurance?

Yes, you may buy both. Many people opt for a term plan for pure protection and a life insurance plan for savings and long-term financial planning. It depends on your financial needs and goals.

At what age should I buy term insurance and life insurance?

It’s suitable to buy insurance between the ages of 20 to 25. Starting early helps you lock in lower premiums and build stronger financial security over time.

What happens if I discontinue premium payments for term insurance or life insurance?

If you stop paying premiums for a term plan, it lapses and provides no benefit. For life insurance, the plan may continue as a reduced paid-up policy if premiums were paid for a minimum required period.

Disclaimers

  • Insurance cover is available under the product.
  • The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to the Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • #Rider is not mandatory and is available for a nominal extra cost. For more details on benefits, premiums, and exclusions under the Rider, please contact Tata AIA Life's Insurance Advisor/ branch
  • IN THIS POLICY, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER
  • THE LINKED INSURANCE PRODUCT DOES NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisor.