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Difference Between Term Insurance and Life Insurance

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Term Insurance and Life Insurance
October 18, 2024

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A life insurance plan is an important part of your portfolio diversification. There are two types of life insurance plans, namely term life insurance and whole life insurance. Many often confuse one for another as both provide benefits in case of the policyholder's demise. However, both options vary in terms of the policy tenure, cash value, and premium amount, among others.

About term insurance

As the name suggests, term insurance refers to the payment of premium for a fixed period of time. 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. In case the policyholder survives during the term of the plan, no maturity benefit is provided.

Understanding whole life insurance

Whole life insurance plans offer dual benefits of investment and protection for the entire life of the insured. Whole life insurance plans generally come with an upper age limit of 100 years. Such a plan also offers the advantage of cash accumulation that builds during the entire period of the policy

Term insurance or whole life insurance: Making the right choice

Both term insurance plans and whole life insurance policies have their set of features and benefits. Individuals may make the right choice between the two life insurance options by comparing the benefits and choosing the one that is best-suited to their needs.

Following are three major distinguishing aspects of term insurance and whole life insurance.

1. Premium

Term insurance plans often offer cheaper premiums than entire life plans. It is also vital to understand that with a term plan, the full premium amount is used to provide insurance coverage. The same is not the case with whole life plans. Part of the premium is used for insurance coverage while the rest is invested. In case the policyholder withdraws, surrenders or lives up to the maturity period, the accumulated amount is returned at the sum assured value. Policyholders may also enjoy the benefit of bonus in case profits are earned on the invested amount.

2. Tenure

By its nature, term plans offer coverage for a fixed tenure, such as 5, 10, 15, or 30 years. Whole life insurance plans, however, come with flexible tenures and are usually applicable till the policyholder reaches 100 years of age.

3. Cash value

As opposed to term plans, a part of whole life insurance premiums is invested in financial instruments. A cash value is therefore built up over time. This can be used by the policyholder to borrow money at a cheap rate. Term plans, however, do not offer such a benefit. Additionally, whole life insurance policyholders may withdraw a part of the cash value during the tenure of the policy.

Individuals may, therefore, take into consideration the aforementioned features and benefits while deciding between the two life insurance options. The best way to make the right choice is by keeping two important aspects in mind, the age and the purpose of buying the insurance policy. Individuals may opt for a term plan if they are in the younger age bracket, and may consider converting it into a whole life plan later in life. However, individuals in the older age group, such as 40 years and above may consider availing of a whole life insurance plan. Such an option offers coverage for the entire life and is also cost-effective as term plans levy a higher premium for older individuals.

Individuals may, therefore, opt for the right plan based on their age, financial situation, and the purpose of the insurance plan.

FAQs   

Q: Which is life insurance plan is better?

The answer lies in your objective of buying the insurance. Term insurance is one of the types of life insurances. Other types of life insurance plans include ULIPs, money back policies, endowment policies, retirement plans, etc. Whether a life insurance plan or a term insurance would be better for you would depend on factors such as your financial goals, age, existing liabilities and assets, income, and the reason behind buying the insurance.

Q: Which is better, term or whole life insurance?

Term insurance plans are primarily aimed to provide assured life cover to your nominees/beneficiaries in case of your death during policy tenure. In case you unfortunately die after the policy term has lapsed, your nominees may not get the cover amount. But in case of whole life insurance, the policy offers coverage for your entire lifespan, such as up to 99 or 100 years.

Term or whole life insurance, which one is better for you, would depend on how long you want the coverage for. If you want to be specifically covered for particular policy tenure, such as 10 years or 20 years, term insurance can be chosen. But if you wish to get covered for your entire life, whole life insurance can be chosen. You can contact one of India's leading insurers, HDFC Life, to get more clarity about which life insurance would be suitable for you. However, keep in mind that some insurers nowadays offer term insurance till the age of 99 as well.

Q: What are the 3 benefits of term insurance?

The 3 big benefits of term insurance are high sum assured at low and affordable premiums, the option of add-on riders such as critical illness cover, and income tax benefits. Other key benefits of term life insurance include multiple death benefit payouts and the return of premium option.

Q: Is it safe to buy term insurance?

Yes. It is safe to buy term insurance from reputed and leading insurers in India, such as HDFC Life. Do not click on any suspicious or random link or website that claims to provide insurance, as they can be scams. Make sure you check the reputation, history and claim settlement ratio of an insurer when buying term life insurance.

Q: Who is not eligible for term life insurance?

If you meet the eligibility criterion of an insurance company, such as the age, citizenship, medical examination, identity proofs, etc, your term life insurance application will likely be accepted. However, if you fail to meet any criteria, such as your age does not fall into the usual bracket of 18-65 years, or you do not clear your medical tests, you may not be eligible for term insurance.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Here's all you should know about life insurance.

We help you to make informed insurance decisions for a lifetime.

Difference Between Term Insurance and Life Insurance

Difference Between Term Insurance and Life Insurance

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Term life insurance age limit is the age range for buying a term plan. In India, you can start at 18 years, and the maximum age is usually up to 65 years.

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