Confused between term insurance and life insurance? Read this to know about the benefits of term and life insurance

Term Insurance Vs. Life Insurance! Which One's Better?

The basis of insurance is to cover unforeseen risks that may affect you and your family. Among the several insurance products available in the market, life insurance and term insurance are two of the most popular ones around, but they differ a lot in several ways.

Term life insurance is usually the better option for young people and it can fit easily into your budget. Choose term insurance if you're concerned about uncertainties of life such as illnesses or financial problems that could occur in the future.

Life insurance, on the other hand, is an investment tool and a form of financial planning for you and your family. It ensures that your family has enough finances to deal with any sort of crisis in times of need. In this article, you will learn about both types of insurance, key factors that differentiate term vs life insurance, and how to choose between the two.

What is Term Insurance?

As the name suggests, term insurance refers to the payment of a premium for a fixed period. In case of the policyholder's untimely death during this period, the insurance provider is liable to pay the death benefit amount to the beneficiary or the nominee.

The maturity amount will be provided in case the policyholder survives during the term of this plan if you choose the “Return of premium” option with your plan.

What Is Whole Life Insurance?

Whole life insurance is an investment program that acts as a protection policy for the entire life of the insured. These plans generally come with an upper age limit of 100 years, and a cash accumulation aspect that builds throughout the plan.

It’s also worth mentioning that having both protection and benefits can often be considered more flexible than other types of contracts due to there not being a limited time frame involved with this agreement. You are always in control to determine when you might sell it or opt-out of using it.


Term Insurance Vs Life Insurance – A Comparison of Their Benefits

1. Death Benefit

The two types of insurance differ in that a life insurance policy guarantees that the insured will be paid out in case of the demise of the insured within a specific time, for example, before retirement age. A term insurance plan is different because it only provides the insured with a death benefit if the insured passes away during their term, or named duration.

The amount provided as the death benefit in term life insurance plans is much higher than the death benefit offered by life insurance policies. The fact that you can use some of your investments to make up for premiums paid also makes them a great choice.

2. Risk Coverage

Term insurance plans are relatively cheaper than life insurance plans and tend to have a fixed premium regardless of the age at which the person who’s insured purchases term insurance. Term insurance policies on other hand are essentially coverage for a certain amount of time (e.g. 10 years) and in case something happens during that time to the insured, their families will be compensated for any loss incurred as opposed to life insurance plans which provide total coverage for life till death for the people named in their plan so there will be no chance of any family's lives being affected by lack of resources provided that they're still alive and healthy enough to carry on with daily tasks, etc. Unlike the typical life insurance policies, this type of policy does not offer any survival benefits or maturity returns.

3. Flexibility Characteristics

Life insurance policies often put a lot of pressure on their policyholders in terms of fulfilling certain requirements to be eligible for policy benefits. You know how life insurance is all about making sure the family is taken care of financially, and that's what makes it so difficult to justify quitting or compromising a policy when you're faced with pressure or trouble paying premiums.

Life insurance policies make promise funds available only if you fulfil the entire tenure of the policy. If you want to surrender a term insurance policy, there are fewer formalities involved than if you want to surrender a life insurance policy. With term insurance plans, once you stop paying premiums at all, the benefits of the policy terminate.

If you surrender your policy, the entire amount of money that you invested through your paychecks will not be returned to you. The only thing that is recouped by the insurance company upon a policy surrender is what they called a premium and that too after any applicable or specified deductions.

Moreover, most term life insurance policies are indeed renewable and flexible as they give the consumer(s) an option to convert the policy into an endowment plan with a renewal payment thus increasing both their protection and value, but not without an immediate increase in the premium cost.

4. Premium Payments

If a customer wants higher coverage with their life insurance policy, they can purchase it but be ready to pay a higher premium. Due to a high premium amount, most individuals don't take advantage of all of the benefits that are available to them in a particular life insurance policy. On top of that, some plans provide low returns compared to what may be available in other investment mediums or based on specific market conditions.

The Takeaway

Life insurance and term life insurance are both important types of coverage. But there are many differences between the two as well, which you need to know before purchasing a policy. Life insurance, such as whole and universal life, can be used to support dependents after a person passes away.

Term insurance is more economical, but it only covers someone during the term of their policy. So while life insurance is more beneficial to your family should you pass away, term insurance is better for preventing financial loss due to illness or a death-by-natural-causes that could happen long after the policy expires.

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