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Difference Between Term Insurance and Life Insurance

Term and Life insurance are familiar terms when we think of insurance. Let’s learn about their key differences and the most suitable type of insurance.

There are several differences between term insurance and life insurance which cannot be known by every individual. Before investing any sum of money in the policies you must learn the differences first and choose accordingly. 

What do We Understand by Term Insurance?

Term insurance is the simplest and most preferred form of insurance. Under this insurance, the insured gets a death benefit if the untimely demise is due to the mentioned contingencies in the policy conditions. 

However, if the policyholder outlives the policy terms he is not entitled to receive any benefits. It is considered an inexpensive way to give financial protection to the family left behind. The amount to premium is also very minimal. Different companies have different policies for insurance. It is the rightful duty of the insured to compare and choose the right policy and stay away from scams. 

However, Term insurance does not cover every death cause. There are 8 major death causes that are not covered by term insurance. The cases are namely Murder, Death under alcoholic influence, death due to heavy smoking, Death occurring due to participation in life-risking activities like paragliding, skydiving, or car racing., death due to existing health conditions, death due to childbirth, and suicidal death. These situations are not covered under term insurance and the beneficiary will not be eligible to claim the benefits. 

What is Life Insurance? 

In simple terms, life insurance is a contract between the insurer and assuring the payment of a particular amount to the beneficiaries after the insured passes away. The policyholder is bound to pay a premium regularly to claim life insurance. The best part about life insurance policies is that they do not have a time limit and remain active till the death of the insured. 

It is a smart way to protect the future of loved ones. It is important to compare both insurances as there are different types of insurance policies available. The comparison makes it easier for potential policyholders to understand and choose the best policy accordingly. 

Life insurance can help individuals in accomplishing their desired goals like marriage, retirement, buying a house, and living a relaxed financially secure life. In addition, the beneficiaries will be allowed to enjoy the benefits completed as life insurance policies are usually tax-free. It also helps in debt management. 

The benefits of life insurance are that there are usually cheaper plans when you buy a policy as a young policyholder. Such policies give you sufficient time to plan a future for yourself and your family. You can plan on having a happy retired life after going for such policies. 

What are the Differences Between Term Insurance and Life Insurance?

In today’s time, everything has become unpredictable. Someone’s life can change within a blink of an eye. Such thoughts might scare a person and make them feel worried about their family. Every individual wants their family to live a financially stable and quality life when they are not around. That’s when insurance policies come into play. Such policies have proven to be a great financial decision. However, before choosing the right insurance policy, have a glance at the differences and then select the correct insurance for a secured life ahead. 

Term Period

Term insurance plans usually range from 10 to 35 years. However, Life Insurance policies can extend from 5 to 30 years. And whole life insurance plans provide coverage for the entire lifetime of the insured. 

Flexibility

When it comes to surrendering flexibility, term insurance plans are considered to be more flexible. In case the insured stops paying the premium amount, his rights under that policy are terminated and the policy discontinues. However, with life insurance, the insured receives back only the premium amount and not the savings amount. 

Policy Renewal

Term insurance policies are renewable. The policyholder can convert them into an endowment plan with a higher premium amount. However, life insurance policies can only be renewed after the maturity of the policy. 

Premium

The premium amounts for both insurances are different. Term insurance is a more affordable option. The premium amount is lower than other insurance policies available. Whereas the premium amount for life insurance policies is higher in India. And it is considered an expensive type of insurance. 

Life insurance gives a lower return as compared to term insurance as they provide maximum coverage at a lower cost. Term insurance is a preferred choice for individuals who are the sole earners of their family and do not have a stable source of income to provide for after their demise. 

Benefits

This is where both insurance policies are similar. Both life insurance and term insurance provide death benefits to the beneficiaries of the policy. 

Policy Coverage

Term insurance only provides benefits to the dependents of the insured. His family will receive the benefits of the chosen policy. However, this is not the case with life insurance. Life insurance provides not only death but also maturity benefits to the insured and their family. This is a plus point of life insurance policies.

Maturity Benefits

Term insurance provides no benefits if the insured outlives the term period of the policy. However, life insurance provides maturity benefits to the insured. In case of the term insurance, the insurer will pay back the amount of premium paid if the insured survives the term period mentioned in the policy. 

Conclusion

Term insurance and life insurance have their benefits and drawbacks. As far as the comparison is concerned, term insurance is a good option for individuals who want to provide a secure future for their families. Such policies protect against the sudden departure of the insured. Although there is an age limit of 65 years for term insurance policies. Moreover, it provides higher coverage at a lower cost, and the death payout amount is also higher. 

Life insurance has its benefits. The insured gets to enjoy the benefits after the maturity of the policy. The concerned individuals must carefully analyze the insurance policies and recognise the type of financial protection they are looking for. The differences can help the insured in understanding it better and making the right decisions.

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