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Term Insurance vs Life Insurance

In modern times, life insurance has become an important financial tool to protect your family. With time, people have started recognising the importance of buying life insurance in order to create a financial safety net for their loved ones in case of their untimely demise.


However, often ‘Term Insurance vs Life Insurance’ becomes the topic of discussion as many people tend to get confused between the two types of life insurance plans. Both term insurance and life insurance plans have unique features and benefits that suit the varying needs of policyholders. In this article, we’ll take a detailed look at both as the first step to understanding the difference between term insurance and life insurance is to know about both plans individually. Before we get into the entire term vs life insurance part, let’s have a look at what term insurance is.

About Term Insurance

Term insurance is a type of life insurance plan that gives financial coverage to the family for a fixed duration in case of the untimely death of the policyholder. The policyholder must make regular premium payments to keep the plan active. Term insurance is the most basic form of life insurance. You can use a Term Insurance Calculator to know the amount of premium you have to pay for any plan.


Apart from the basic term insurance policy, most companies also provide the option to include additional riders like critical illness cover, accidental death cover, etc. One of the main benefits of term insurance is its affordability. Between term plan vs life insurance, a term insurance policy has lower premium prices, even while providing a large sum assured.

 Types of Term Insurance Plans in India

1. Level Term Insurance Plan:

The premiums you pay throughout the duration of the policy remain the same.

2. Increasing Term Insurance Plan:

The assured coverage increases over the duration of the policy. The premium rate might or might not change depending on the plan or company.

3. Decreasing Term Insurance Plan:

The assured coverage decreases over the duration of the policy.

4. Return of Premium Term Plan:

The premiums you have paid for the duration of the policy are returned in full, at the end of the policy term.

5. Convertible Term Insurance Plan:

It is a flexible plan that can be changed into another insurance plan by the policyholder.

6. Term Insurance Plans With Riders:

Riders refer to additional coverage that can be included under the term insurance plan. A plan with riders such as accidental death cover, critical illness cover, among others, are examples of term insurance plans with riders.

About Life Insurance

A life insurance policy is a much more comprehensive policy that provides extended coverage to the policyholder and their family/nominees. A whole life insurance policy provides coverage throughout the complete duration of the policyholder’s life. However, there may be some life insurance plans that provide limited coverage. Life insurance plans usually give you twin benefits by combining death benefits with a savings component or cash value that can be reinvested and tax-deferred.

Here, the premiums are split into two parts and are usually allocated flexibly. While one goes towards providing the death benefit to beneficiaries, another chunk of the premium is utilised for future wealth creation. Moreover, a life insurance policy gives you the freedom to invest a part of the premium amount into other instruments. Hence, life insurance plans are considerably more expensive than term plans.

 Types of Life Insurance Plans in India

1. Whole Life Insurance Plan:

It remains active throughout the duration of the policyholder’s life and benefits are given out to the family member at the time of the policyholder’s death.

2. Endowment Assurance Plan:

It helps the policyholder save money over a period of time, which is provided to them as maturity benefits if they survive the duration of the policy.

3. Money-Back Plan:

It pays out the maturity benefits in instalments to the policyholder, once the policy term has ended.

4. Child Plan:

It includes a combination of insurance and investments that helps to secure the financial future of the policyholder’s child.

5. Unit-Linked Insurance Plan (ULIP):

It provides a combination of life insurance as well as investments under a single plan.

6. Pension Plan:

A specific predetermined amount of money is given to the policyholder and their family each month after the policyholder retires.


As we explored both the terms, let’s now understand life insurance and term insurance differences, part by part.

Difference Between Term Insurance and Life Insurance: Features

Mentioned below is a table that highlights what is the difference between term insurance and life insurance in terms of their distinct features.


Term Insurance Plan

Life Insurance Plan

Coverage of the Policy

A basic term insurance plan only offers death benefits to the dependents of the insured.


Life insurance offers both death and maturity benefits to the insured and their family.

Premium Cost

Term insurance is the most affordable life insurance product available in the market.


Life insurance premiums are higher compared to term insurance plans in India.


Death Benefits

Term insurance offers death benefits to the beneficiaries of the policy.


Life insurance also offers death benefits to the beneficiaries of the policy.


Maturity Benefits

Ideally, the term policy offers no maturity benefits if the insured outlives the term.

However, with the return of the premium option, the insurer will repay the premiums paid towards the policy if the policyholder survives the tenure.


Life insurance usually offers maturity benefits to the insured.


Term Period

It ranges between 10 years and 35 years.


It ranges between 5 years and 30 years. Whole life insurance gives coverage for the whole duration of the policyholder’s life.


The only flexibility that the term insurance plans offer is to enhance the scope of the policy with rider benefits such as critical illness cover, the return of premium cover, accidental death benefits, income return benefit, etc.


Life insurance plans are very flexible. You can get loans on the plan, make partial withdrawals, and pay additional premiums for extra benefits.


Term Plan vs Life Insurance: Benefits 

Through the table given below, you will get a clear idea about the difference between term insurance and life insurance through their benefits.


Term Insurance Plan

Life Insurance Plan

 Risk Covered vs Savings  

 Term insurance plans cover the financial future of your loved ones, especially in your absence.

Generally, the policy offers no benefits if you were to survive the policy tenure.


 Life insurance plans will cover the family’s finances in case of your absence.

Life insurance policies also offer a facility to invest and build your wealth over time.

 Surrendering the policy  

 Term insurance is easier to surrender. Once you stop paying the premiums, the policy terminates and lapses.


 In the case of life insurance plans, you will have to complete the policy term to receive the maturity benefits.

So, if you decide to discontinue the policy before the completion of the tenure, you may not be able to retrieve the savings.

The insurer might return the premiums paid, but only after certain deductions.


 Renewal of the Policy  

 Term insurance plans are renewable. You can also decide to convert the policy into an endowment plan.

 You will have the option to renew only once the life insurance plan matures.  


 Tax Benefits  

 You can claim tax deductions on the premiums paid towards the policy under Section 80C of the old income tax regime.

The death benefits received by the beneficiaries are tax-free under Section 10(10D) of the Income Tax Act, 1961.

If you have taken critical illness cover, you can get additional deductions under Section 80D.

 You can claim tax deductions on the premiums paid towards life insurance plans under Section 80C of the old income tax regime.

The maturity and death benefits received are tax-free under Section 10(10D).



As you can see as per the term insurance vs life insurance tables given above, both these products provide financial security to the policyholders and their families. Even if you are not looking for a full-fledged whole life insurance policy, it is very important to get a term insurance plan to keep your family financially safe and worry-free. You can take a look at the various term insurance plans available at Bajaj Markets.    

Frequently Asked Questions

A term plan only provides a death benefit for the duration of the policy term. Life insurance policies provide a death benefit, maturity benefits and investments.  

A term plan only provides a death benefit for the duration of the policy and the policyholder does not get back the premiums paid. A whole life insurance policy provides coverage throughout the duration of the policyholder’s life, along with maturity benefits and other features. However, term insurance is significantly cheaper than whole life insurance.  

Generally, the premiums paid by the policyholder are not returned at the end of the policy. However, you can buy the return of premium to get back the money you paid as premiums, at the end of the policy.  

Term insurance only provides a death benefit in case of the death of the policyholder during the policy term. The premiums paid are not returned. If the policyholder stops paying premiums, the term policy simply lapses.  

It is recommended that you buy term insurance early in your career, during your 20s, as you will have to pay lower premiums.  

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