Term Insurance Vs Life Insurance: Which is Better?

Table of Contents

• Why do People get Confused between Term Insurance and Life Insurance?
• What is Term Insurance Policy?
• What is Life Insurance?
• Key Difference between Term Insurance and Life Insurance
• Which Insurance Policy Should You Choose: Term Insurance or Life Insurance?
• Tax Benefits of Term Insurance and Life Insurance
• Conclusion

Why do People get Confused between Term Insurance and Life Insurance?

What is the difference between term insurance and life insurance? People often get confused by this question. Well, the confusion is genuine. Let’s take an example, suppose that two friends opt for insurance, but one pays a lower premium and doesn’t get any return when the policy expires. On the other hand, the second friend pays a higher annual premium and receives a lump sum at maturity.

As we can see, both bought insurances, but for different reasons. So, the question is what made their choices different? Well, here the term insurance and life insurance come into the picture. Let’s understand each in detail below.

What is Term Insurance Policy?

A term insurance is a type of life insurance that offers pure risk protection to your family in case of your death during the policy period. It covers the risk of early death, without any savings or investment feature. In this type of insurance, you won’t get any return in case you survive the entire policy term. Term life insurance premiums are more affordable as they provide large life cover at a low cost. The significant aspects of term insurance are:

• Coverage: Term insurance coverage can last for a fixed term. For example, 5, 10 or 20 years.
• Premium Cost: This is particularly cheaper than life insurance.
• Cash Value: No collection of any cash value.
• Benefits: Term insurance offers death benefits if you die during the policy term. If you outlive, there is no maturity benefit given to the insurer.
• Best for: young professionals, raising children, paying remaining mortgage, etc.

What is Life Insurance?

Life insurance covers death protection along with savings or investments. Life insurance offers wealth-building benefits over time, which may take the form of bonuses or market-linked returns. It provides your family with financial security and lifelong coverage after your passing. Life insurance premiums are more expensive than term insurance premiums due to additional long-term benefits and returns. Let’s have a look at the major aspects:

• Coverage: It offers coverage for the lifetime if the premium is paid time to time.
• Premium Cost: Premiums of life insurance are generally higher than term insurance.
• Cash Value: Some amount from the premium goes into savings or investment accounts that you can borrow against or withdraw from.
• Benefits: Life insurance pays a death benefit and cash value for later benefits that developed over the time. 
• Best for: lifelong protection, investment or wealth for family, leave a financial legacy for heirs, etc.

Key Difference between Term Insurance and Life Insurance

Which Insurance Policy Should You Choose: Term Insurance or Life Insurance?

Choosing an insurance policy depends on an individual's life stage. The following are the points that can help you find out which insurance you should opt for:

• For a young working professional, term insurance can be the best choice, as it offers affordable, high coverage to protect your family in the event of unexpected mishaps.
• If you are married and have children, a combination of term and life insurance might suit your needs and benefit your family in the future.
• Finally, for a person who needs return benefits and wants to build wealth for the future, they can opt for life insurance, which not only provides financial security but also offers long-term returns.

So, choose an insurance policy that suits your needs.

Tax Benefits of Term Insurance and Life Insurance

There are several tax benefits of term insurance and life insurance, which are discussed below:

• Section 80C Deductions: Premiums paid for term and life insurance plans up to 1.5 lakh annually are deductible under Section 80C.
• Maturity Benefits: Tax-free maturity benefits can only be provided under life insurance. Term insurance doesn't cover any maturity benefits.
• Section 10(10D) Benefits: Both policies offer tax-free death benefits, which ensure your family's financial security.
• Rider Premiums: tax benefits are available for rider premiums under Section 80D, such as critical illness insurance.
• Other Benefits: Other deductions may be available depending on the plan's features and riders.

Conclusion

As we have discussed the significant aspects of term and life insurance, as of now you must be aware of the differences between the two. Whether you need a term insurance for higher coverage at low cost or a life insurance for your family’s wealth along with savings and additional benefits, you can take any one as per your age, life stage and needs. For more insurance information, explore Tractorkarvan.