Understanding the difference between life insurance and term insurance
When it comes to choosing an insurance policy that suits your life’s needs, it is essential to know the difference between life insurance and term insurance. Life insurance and term insurance are the two most popular types of insurance policies that provide financial security to your family in case of an unforeseen event.
Life insurance
Life insurance is a policy that provides financial security to the family members of the insured person in case of his/her untimely death. The policyholder pays a premium towards the policy, and in return, the insurance company provides a lump sum amount to the nominee in the event of the policyholder’s death.
A life insurance policy is a long-term investment plan that offers various benefits like maturity benefits, bonuses, and payouts on death. A life insurance policy can also act as a retirement plan, where the policyholder can receive a lump sum amount on maturity after paying the premiums for a specific period.
Term Insurance
Term insurance is a type of insurance policy that provides financial security to the family members of the policyholder for a specific period. The policyholder pays a premium for the duration of the policy, and in case of his/her death during the policy period, the insurance company provides a lump sum amount to the nominee.
Unlike life insurance policies, term insurance policies do not have any maturity benefits or payouts. They only pay out the sum assured in case of the policyholder’s death during the policy period. Term insurance policies are affordable and offer higher coverage at a lower premium compared to life insurance policies.
Which one to choose?
The choice between life insurance and term insurance depends upon individual requirements. If you are looking for a long-term investment plan that provides financial security to your family, then a life insurance policy might be suitable for you. However, if you want affordable coverage for your family in case of your untimely death, then a term insurance policy is an ideal option.
In conclusion, both life insurance and term insurance policies are designed to provide financial security to your family in case of your untimely death. It is essential to choose an insurance policy that suits your life’s needs and financial goals. So, it is always advisable to compare different insurance policies and choose the one that best fits your life’s requirements.
Table difference between life insurance and term insurance
| Type of Insurance | Definition | Benefits | Drawbacks | Cost |
|---|---|---|---|---|
| Life Insurance | A type of insurance that provides coverage for the entire lifetime of the insured person. It includes a savings component that builds cash value over time. | Provides permanent coverage, builds cash value, can be used as a source of tax-free income, can be borrowed against, can be sold to a third party. | Higher premiums, complex policies, potential for mismanagement of cash value component, requires a medical exam for approval. | More expensive than term insurance due to permanent coverage and cash value component. |
| Term Insurance | A type of insurance that provides coverage for a specific period of time, usually 10-30 years. It does not include a savings component. | Lower premiums, simple policies, provides coverage during the specified term, can be converted to permanent insurance, no medical exam required for approval. | No cash value component, premiums may increase after the term, provides coverage only for a specific period of time. | Less expensive than life insurance due to limited coverage and lack of cash value component. |