Difference Between Term Insurance and Life Insurance

22 November 2022
5 min read

Life insurance can be attractive for many people, but not all life insurance is created equal. Term insurance is an essential type of life insurance that provides coverage for a specific period. The type of term insurance you choose depends on your situation and needs.

Life insurance is an essential part of financial planning, as it helps you to preserve your finances during your lifetime and beyond. It is a contract that guarantees a person's death benefit to a beneficiary if they die while the policy has been in effect.

Life insurance is a contract between you and an insurance company that pays out a guaranteed sum of money when you die. Your policy will typically have a term (the length of time for which you're covered), which can be anywhere from 10 years to as long as your life expectancy (the amount of time someone might expect to live).

Term insurance pays off less money over a more extended period than whole-life or universal-life policies do. However, it may still be worth considering if you want to ensure that your family can continue their lifestyle without worrying about having enough money for retirement later down the road. 

Understanding Term Insurance Plan and Life Insurance Plan

Here is a brief introduction about Term and Life Insurance Plan, respectively-

  • Term Insurance Plan

A term insurance plan is a financial product that provides a specified amount for a specified period. The policyholder has to pay a premium for this cover but will not have to make any further payments during the term.

Term insurance is a more affordable plan that can be purchased for a fixed period. In addition, most term insurance plans have an assured minimum sum. This means that the insurer promises to pay at least this amount even if no claim was made or a covered event occurred during the term of coverage. 

  • Life Insurance Plan

Life Insurance Plans are a great way to protect your family in case of an unexpected death. In addition, life insurance plans can help you build a financial cushion for yourself and your dependents and provide them with financial security if you pass away unexpectedly.

Life insurance plans are designed to provide life-long coverage for you and any dependents who may be left behind after your passing. Many plans also offer death benefits if you pass away prematurely from an accident or illness, which can help pay for funeral expenses and other associated costs.

The most important thing about buying a life insurance plan is knowing exactly what coverage you are purchasing. In addition, you want to ensure enough protection for all your dependents so they will not be left without any funds or savings if one dies unexpectedly.

Difference Between Term Insurance and Life Insurance

Life insurance covers you and your family in the case of your death, whereas term insurance provides coverage during a chosen period.

Overall, term insurance is associated with a more affordable price tag when compared to life insurance. This means that there will be less of a financial burden on your family should you pass away while the policy is in force.

In addition, term policies are customized to your needs and can help your family. In this blog, let us understand the difference between term plan vs life insurance in detail.

Term Insurance vs Life Insurance: Overview

The following table illustrates the difference between term vs life insurance-

Difference

Term Insurance

Life Insurance

Coverage

Only premature death

Both premature death and survival until the policy tenure

Premiums

Low and affordable

Higher rates

Maturity benefit

Usually not payable

Mostly Payable

Death benefit

Payable

Payable

Term

10 to 35 years

5 to 30 years

Paid-up/Surrender value

No, paid-up value or surrender value

If premiums are discontinued after a specified number of years, the plan acquires a paid-up value, and if surrendered after that, a surrender value is paid.

Flexibility

Not Flexible

Very Flexible

Let us understand the above-mentioned points in detail here-

  • Coverage

Life insurance provides a death benefit to the beneficiary, while term insurance provides a cash benefit to the policyholder. Also, term insurance covers the premature death of the policyholder within the tenure specified in the policy document. In contrast, life insurance covers both premature and survival till the policy's maturity. 

  • Premium

The premium for life insurance is typically higher than term insurance since life insurance policies cover the whole life.

  • Coverage Duration

Life insurance coverage lasts for a set period (5-30 years), while term insurance coverage can last up to 10 to 35 years.

  • Bonus and Other Additions

Life insurance companies will typically add a bonus to your policy after you have paid your premiums for at least one year. Term plans usually do not offer any bonuses or additional benefits.

If the insured dies, the basic sum assured will be paid under term insurance policies. However, there are other life insurance plans where bonus additions, guaranteed additions, loyalty additions, and other benefits are added.

  • Paid up and Surrender

Applying for term insurance is called surrendering your whole life policy (the one you have now). No paid-up value or surrender value is acquired.

In life insurance plans, if premiums are discontinued after a specified number of years, the plan acquires a paid-up value. If surrendered after that, a surrender value is paid.

  • Flexibility

Whole life insurance policies offer more flexibility than term life policies, and this is because term insurance does not have any surrender value or paid-up value and also does not offer any maturity benefits.

You may also want to know the 4 Types of Insurance Every 30 Year Old Must Have

Wrapping Up

Term insurance and Life Insurance are essential types of financial plans taken by citizens of any country to have a peaceful life. Therefore, they serve mainly to make our lives safer and more secure.

The key difference between term and life insurance is that the former offers coverage for a particular period (the term) while the latter provides coverage over your lifetime. So whichever insurance plan you go for, ensure it fits your requirements.

You May Also Be Interested to Know-

1.

The Life and Health Insurance Checklist

2.

Everything You Should be Knowing About Insurance Premium

3.

Importance of Health Insurance – Everything You Need to Know

4.

10 Reasons Why Life Insurance Is a Smart Investment?

5.

The Most Important Things To Know About Term Insurance

Disclaimer: This blog is solely for educational purposes.

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