Life insurance is synonymous with financial protection. Life insurance plans compensate against the financial loss suffered in case of premature death. Moreover, the plans are designed in such a manner that they help in fulfilling your life goals effectively. For instance, there is a child insurance plan which helps you create a secured financial corpus for your child. Similarly, there are pension plans which create an earmarked retirement fund and promise lifelong incomes. Thus, life insurance plans find a place in every aspect of your life and give you financial security.
Life insurance comes in many variants which constitute the different types of life insurance plans. Among these variants, term insurance is often compared with other types of life insurance plans. But is the comparison justified? Is term insurance similar to the other types of life insurance plans?
No, it isn’t. Term plans differ from other types of life insurance plans in various aspects. Let’s understand this difference between term insurance and life insurance in details –
What is the term plan?
A term insurance plan is a type of life insurance plan which covers the risk of premature death. In case of death of the insured during the term of the policy, the policy promises to pay a death benefit. Term insurance plans promise high coverage at low premiums allowing you to avail a high sum assured which would be able to meet your family’s financial requirements in your absence.
What are other life insurance plans?
Term insurance is a type of life insurance plan among others. Besides term insurance, life insurance plans come in other variants too. These variants include the following
- Whole life insurance plans
- Endowment assurance plans
- Money-back plans
- Child plans
- Unit linked insurance plans
- Pension plans
Term insurance v/s life insurance
Now that you have understood the basic meaning of both, let’s understand the difference between term insurance and life insurance plans. The differences between the two can be outlined in the following parameters –
- Coverage Term insurance plans promise coverage only against premature death. Under most term plans, the benefit is paid only if the insured dies during the tenure of the plan.
Other types of life insurance plans, however, also have a maturity benefit. While these plans cover the risk of premature death, they also pay a benefit if the insured survives until the end of the policy tenure. Thus, in terms of coverage, term plans and other insurance plans are quite different.
- VariantsTerm insurance plans are further divided into the following four variants
| Name of the variant |
Meaning |
| Level term insurance plan |
Term plan where the sum assured remains constant throughout the policy tenure |
| Increasing term insurance plan |
Term plan where the sum assured increases during the policy tenure |
| Decreasing term insurance plan |
Term plan where the sum assured decreases during the policy tenure |
| Return of premium term plan |
Term plan where the premiums paid during the policy tenure are refunded back if the insured survives till maturity |
- Term plans are, therefore, divided into different variants depending on the coverage that they provide. The goal of all variants, however, remains the same which is financial security or income replacement.
- In the case of life insurance, however, different variants fulfil different life goals. Endowment plans allow you to create wealth through guaranteed returns while money back plans provide you liquidity. Child plans promise a corpus for your child even when you are not around while unit-linked plans help you gain investment returns. Thus, you can choose different plans depending on your different life goals.
- PremiumTerm insurance plans cover only the risk of premature death. That is why they have extremely low and affordable premiums. You can easily buy high sum assured levels at affordable premiums. Other life insurance plans have a wider scope of coverage as they also promise a maturity benefit. The premiums are, therefore, higher than term plans.
- Coverage duration Term plans come with long term coverage durations which can go up to 30 or 35 years. Other types of life insurance plans, however, can be taken for shorter durations too as the tenure starts from 5 years and goes up to 30 years.
- Paid-up and surrender Under term plans, there is no paid-up value or surrender value. If you discontinue paying the premium, the plan would lapse and if you don’t revive it the coverage would be terminated. When the coverage is terminated you don’t get anything in return for the premiums already paid.
- Other life insurance plans, however, give you some benefits even if the premiums are discontinued. If you have paid the premium for a specified minimum number of years and then discontinue the premiums, your policy would become paid-up. Under a paid-up policy, the sum assured would be reduced but the policy would continue. You can also voluntarily terminate the policy by surrendering it. When you surrender, you would get a surrender value.
- Bonus and other additionsThere are no bonuses or other types of additions under term plans. In case of death, the basic sum assured is paid. Under other types of life insurance plans, like an endowment, money back or child plans, you can get bonus additions, loyalty additions, guaranteed additions, etc. These additions enhance the policy benefits.
- Flexibility Term plans are quite rigid in the sense that they do not have any paid-up or surrender value and do not pay any maturity benefits. Life insurance plans, on the other hand, are flexible. Traditional life insurance plans promise a paid-up value and a surrender value. You can also avail policy loans under such plans. Moreover, if you choose ULIPs, you can also withdraw partially, switch or pay additional premiums.
The difference between term insurance and life insurance can be summarised in the following table too-
Term insurance v/s life insurance– the differences
| Points of difference |
Term insurance |
Life insurance |
| Coverage |
Only premature death is covered |
Both premature death and survival until the policy tenure are covered |
| Premiums |
Very low and affordable. In fact, term plans are the cheapest type of life insurance plans |
Premiums are higher than term plans |
| Maturity benefit |
Usually not payable |
Payable under most plans |
| Death benefit |
Payable |
Payable under all plans |
| Term |
Ranges from 10 years to up to 35 years |
Ranges from 5 years to up to 30 years |
| Paid-up /surrender |
The plan does not acquire any paid-up value or surrender value |
If premiums are discontinued after a specified number of years, the plan acquires a paid-up value. If the plan is surrendered thereafter, a surrender value is paid |
| Flexibility |
Not very flexible |
Very flexible |
Term insurance v/s life insurance – the similarities
The only similarity between term and life insurance plans is their tax benefits. Under both plans, the premiums paid are allowed as a deduction under Section 80C up to INR 1.5 lakhs. Moreover, the death or maturity benefit received is also tax-free under Section 10 (10D).
Which one to choose – term insurance v/s life insurance
To choose one plan over the other is a mistake. Term insurance and life insurance plans have their own relevance. A term insurance policy is a must for everyone as everyone needs financial security against the possibility of premature death. Thus, term insurance plans should be bought by everyone.
In case of other life insurance plans, however, the target customers should be the following –
| Type of life insurance plan |
Target audience |
| Endowment plan |
Individuals who have a low-risk appetite and want to create a guaranteed corpus |
| Money-back plan |
Individuals who have a low-risk appetite, want to create a guaranteed corpus but also need liquidity over the term of the plan |
| Whole life plan |
Individuals looking for a lifelong cover |
| Child plans |
Parents who want to create a guaranteed corpus for the future of their child |
| Unit linked plans |
Investors who have a high-risk appetite and want to maximise their wealth with market-linked returns |
| Pension plans |
Individuals who want to create a retirement corpus and/or create a series of regular incomes post-retirement |
- Term insurance plans are, therefore, quite different from life insurance plans. You should understand the difference between term insurance and life insurance and then choose the most relevant plan for your coverage needs. Term insurance has a universal need and should not be missed. In case of other types of life insurance plans, though, assess your financial goal and then choose a plan which matches your goals and aims to fulfil it.
JUST A BRIEF EXPLANATION ON HEALTH INSURANCE
We are very much aware about the importance of a health insurance policy and understand the importance of financial cover if medical emergencies strike and so, we are investing in a health plan for ourselves as well as for our family. Health insurance, however, is a technical cover and so, here is a simple guide to the policy if you are thinking of investing in it –
- There are different types of plans - Health insurance is not only available for covering your medical bills in case of hospitalization, there are different plans that you can avail of for comprehensive coverage. Besides the basic plan for covering hospitalization, you can buy critical illness cover for protecting against major illnesses. Then there are COVID plans if you are worried about being infected. So, expand your coverage. Opt for other plans and build a layered coverage against medical contingencies.
- Check for sub-limits Some health insurance plans impose room rent sub-limits which restrict your coverage. Check for these sub-limits. Try and avoid plans which have such limits because your claim would be considerably affected if the actual amount exceeds the limit. Moreover, there are coverage limits on various benefits like ambulance costs, maternity expenses, AYUSH coverage, domiciliary treatment, etc. Check the limits when buying and try and opt for a plan which has a higher coverage limit so that your out-of-pocket expenses reduce.
- Riders are beneficial Health insurance plans allow optional riders that you can choose by paying an additional premium. Riders like critical illness cover, maternity and new born cover (if you are planning a family), personal accident cover, etc. make for good coverage additions as they provide a wider scope of coverage. So, look for the available riders and try and add them for an inclusive coverage in your policy.
- A healthy lifestyle is rewarding Modern day health insurance plans reward you for living a healthy life. Daily exercising, walking, meditation, Yoga, balanced and nutritious meals, etc. not only keep you fit but also help in reducing your health insurance premium. So, if you are a health conscious millennial, use your healthy lifestyle to get rewarded under your health plan. If not, it’s time you adopt a healthy lifestyle, both for your health and your wallet.
- Insure parents separately - If you are buying a health insurance plan, try not to include your parents under the same cover. There are two reasons for this –
- Since your parents would be the eldest members, the premium would be calculated based on their age. This would drive up your health insurance cost
- If they make frequent claims on the policy, you would not be able to accumulate the no claim bonus
So, opt for a separate health plan for your parents and buy another plan for yourself. Besides ensuring a suitable coverage, you would also be able to avail additional tax benefits on the premium paid.
- Don’t depend on your group health plan only
- If you are employed, your employer might provide you with a group health scheme. Though the plan provides the basic coverage, the coverage is limited and not customizable. Moreover, the coverage is available for as long as you are employed. Invest in an independent policy so that you can get optimal coverage that can also be renewed life-long.
- Understand the basics of health insurance and invest in a suitable policy. You might be a modern age individual in the prime of your health but, remember, contingencies come unannounced. Prepare yourself against medical contingencies by investing in health insurance plans. Believe me, you would be thankful that you did!
