Similarities and Differences Between Term Insurance and Life Insurance

It is easy to get confused between term and life insurance policies as both of them essentially serve the same purpose of safeguarding you and your family against any untoward turn of events in life. The important distinguishers between universal life insurance and a term insurance policy are related to the term, value generation, and premium.

This post enunciates some of the most important features of term insurance and whole life insurance policies for you to find out which one suits your financial goals and requirements the best.

Both term insurance and life insurance bear a lot of similarities: they both act as financial crutches, comes with a variety of options that lets you tailor the plan to your needs, and come with a ton of tax benefits. Yes, you heard that right! You can avail tax benefits under Section 80C and Section 10(10D) on the premium paid towards such policies and on the payout received from such policies.

Now that we’ve touched upon the similarities, let’s examine the differences. And yes, there are several differences.

Term Insurance

A term life insurance plan gives you coverage for a certain number of years and this usually comes with a fixed premium.

Term insurance is believed to be the most basic form of a life insurance policy, offering the policyholder’s beneficiaries full coverage against his/her death. One can enjoy greater coverage like coverage against accidental death or critical illnesses by availing riders along with the term insurance plan. One of the major plus points about term insurance is the cost. Term insurance policies come at extremely cheap premium prices, even while providing a large sum assured. For instance, the Bajaj Allianz Life Smart Protect Goal available on Bajaj Markets comes with a sum assured of Rs. 1 crore at low costs. Further, if the policyholder outlives the policy tenor, one can choose to extend the period of the term policy which usually comes at a slightly higher cost.

In some cases, term insurance plans also provide a savings component. In the event, noc claims are made against the chosen plan variant/rider, the sum assured is returned in full at the time of maturity. The Bajaj Allianz Life Smart Protect Goal plan on Bajaj Markets is one such plan. By opting for the Return of Premium option on your term plan, you can have your premiums returned to you at maturity. Term insurance plan is a prudent way to safeguard the future of your loved ones economically through competitive premium rates.

Universal Life Insurance

A whole life insurance policy is broader when compared with a term policy.

Basically, life insurance policies usually give you twin benefits by combining death benefit with a savings component or cash value which can be reinvested and tax-deferred.

Here, the premium can be split into two parts and is usually allocated flexibly. While one goes towards providing the death benefit to beneficiaries, another chunk of the premium is utilized to supplement the savings of the policyholder. Moreover, a life insurance policy gives you the freedom to invest a part of this amount into other instruments.

When you are young, the majority of the premium you pay is utilized in savings and investments. On the other hand, a major chunk of the premium is utilized for providing life coverage as the policyholder ages. You have a say in what proportion of your premium is utilized for investments and what goes for life cover.

 

Now, term life insurance and whole life insurance policies, both offer essentially the same benefits. However, they are different in their approach and that’s why it is crucial to know the similarities and differences between the two before you decide which one is the right choice for your financial goals and requirements.

Quick Recap

A whole life insurance policy lets you create wealth over time besides assuring you a life cover. As discussed above, this is achieved by investing a part of the premium in other market instruments and savings. On the other hand, a term life insurance policy, promises a greater life cover at very low costs.

While life insurance policies provide you with a savings component by investing in market instruments, term insurance provides you with a less risky savings component by simply returning your premiums back to you. So, when it comes to term insurance v/s life insurance, term insurance has a slight edge over the latter.

Both term and life insurance policies are popular among the common man who wants to safeguard his and his family’s financial well being in the face of unforeseeable circumstances. Both of these plans offer unique features to cater to a wide range of financial priorities. If you are looking for an affordable term insurance plan with comprehensive coverage, download our term insurance app to avail the best offers today!