What are the Differences Between Term Insurance and Life Insurance?
Before knowing the differences between Term Insurance and Life Insurance, we need to define both and the associated terminologies to better understand their differences.
Term Insurance policy provides life cover for a specific period. In other words, if the insured expires within the stipulated time of the policy, the nominee gets the death benefit. In exchange, the insured needs to pay a monthly premium to the insurance company during the term, which is why it is called Term Insurance.
A life insurance policy provides a sum of money on the demise of the policyholder or after a certain amount of time. The money assured by the insurer on the demise of the insured is called Death Benefit. In contrast, the amount of funds guaranteed after completing the policy term is called Maturity Benefit. Life Insurance also includes the premium amount to be paid to the best life insurance company, which in most cases is monthly.
A premium is the amount of money an individual or business pays for a policy that serves as an income for the insurance companies. The premium also serves as a liability for the insurer to provide coverage for claims made against the policy.
Maturity Date is when the policy's tenure is completed when a specific amount of money called the Maturity Claim amount is settled. The amount is paid if the policy has been appropriately continued, i.e., all due premiums have been paid on time.
Term Insurance Vs Life Insurance:
Both Term insurance and Life Insurance have their advantages and limitations, and hence it is essential to validate them both before choosing the right kind of policy. Some opt for both, based on their requirements.
We need to consider the below details to differentiate between the insurance policies.
- Flexibility: Most consider Term Insurance to be more flexible than Life Insurance as surrendering term insurance is comparatively more straightforward than life insurance. The insured has to wait for the entire tenure of the policy to avail of the benefits, while in term insurance, the policyholder has the flexibility to terminate the policy at any point in time. Upon completion, term insurance policyholders can also convert their policy into the endowment plan.
- Premium Amount: The premium amount is relatively higher in life insurance, as the policy offers both death and maturity benefits. In the case of term insurance, they are affordable and provide higher coverage since they cover only death benefits. Interestingly, many opt for life insurance as they are ready to pay additional money to avail of maturity benefits. The term insurance is best suited for those who cannot afford to pay the premium for a longer time.
- Savings: Life insurance is more pro-savings than term insurance. Life Insurance policyholders through the maturity benefit can save a substantial amount of money, while it does not apply to term insurance policyholders.
- Tax Benefit: Both the term insurance and life insurance policyholders are eligible for tax benefits. Term insurance policyholders are eligible for tax exemptions under section 80C and 80CCC and section 10D. For life insurance policyholders, the sum assured to the nominee in case of death of insured is tax-free, while on maturity, the amount of money will be taxed at a marginal rate.
Life Insurance is considered best for investors as it helps them with their investment planning. However, experts suggest that one should avail both life insurance and term insurance at the same time to have life protection for the family as well as investment returns.