Difference between life insurance vs. term insurance
To better understand the differences between term insurance vs. life insurance, here is an overview of the features of each policy type.
Parameters
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Life insurance
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Term insurance
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Coverage duration
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Lifelong
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Specific term (for example - 10, 20, 30 years)
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Cash value component
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Provides cash value that accumulates over time
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No cash value is provided
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Premium rates
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Higher premium rates due to lifetime coverage and guaranteed benefits
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Lower premium rates due to a limited policy term and no cash value
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Death coverage
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A guaranteed death benefit is provided
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A death benefit is paid if the policyholder dies within the policy term
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Flexibility
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Less flexible due to lifelong coverage
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More flexible due to the option to renew the policy after the term expires
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Investment component
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Comes with an investment component with the potential for returns
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No investment component is involved
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Maturity benefits
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Offers maturity benefit or returns if the policyholder survives the term
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No maturity benefit unless it's a return-of-premium term plan
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Risk coverage vs savings
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Combines both risk coverage and long-term savings goals
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Offers only risk coverage, ideal for income protection
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Tenure
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Typically lifelong, from policy start until age 99 or 100
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Fixed tenure decided at the time of purchase (10–40 years)
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Additional benefits and bonuses
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Eligible for bonuses, loyalty additions, and guaranteed returns depending on policy type
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No bonuses; but riders like critical illness, accidental cover, or waiver of premium can be added
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Tax benefit
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Premiums eligible under Section 80C; maturity and death benefits under 10(10D)
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Similar tax benefits under Sections 80C and 10(10D)
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Surrender and paid-up
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Can surrender after a few years; some value may be paid back
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Minimal or no surrender value; usually terminates if not paid or converted to paid-up (if allowed)
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Here is a detailed explanation of the key points mentioned in the above table:
• Coverage duration
Life insurance provides coverage for the entire lifetime of the insured as long as premiums are paid. It ensures that beneficiaries receive a payout whenever the insured passes away.
Term insurance offers coverage for a specific period, such as 10, 20, or 30 years. If the insured dies within the chosen term, the beneficiaries receive the death benefit.
• Cash value component
Whole life and universal life insurance policies come with a cash value component that grows over time. This component can be accessed through loans or withdrawals and can serve as an investment vehicle.
Term insurance policies do not have a cash value component. They focus solely on providing a death benefit if the insured dies during the term.
• Premium
Premiums for life insurance policies are generally higher due to the lifelong coverage and cash value component. These policies require consistent premium payments throughout the insured's life.
Term insurance policies typically have lower premiums, making them more affordable. However, premiums may increase when the policy is renewed for a new term.
• Death coverage
Life insurance guarantees a death benefit payout whenever the insured passes away, regardless of the age at death.
Term insurance provides a death benefit only if the insured dies during the specified term. If the term expires and the insured is still alive, there is no payout.
• Investment element
Whole life and universal life insurance policies have an investment element, allowing the policy to accumulate cash value over time. This cash value can be utilised for various financial needs.
Term insurance focuses solely on providing financial protection in the form of a death benefit. It does not include an investment or savings component.
• Flexibility
Life insurance policies often offer more flexibility, allowing policyholders to adjust coverage amounts or use the cash value for loans or withdrawals.
Term insurance provides fixed coverage for a set term. Once the term ends, the policyholder must renew the policy or seek new coverage.
Think of life insurance like a long-term savings plan with a protective layer—if you outlive the term, you still get something back. Term plans focus only on protection, with no maturity returns unless specially designed.
Your choice depends on what you value more—pure security or financial growth. Term insurance gives your family immediate safety at a low cost, while life insurance helps you grow wealth slowly while keeping protection intact.
Choosing tenure is like setting a safety window for your family. Term plans let you protect income during active earning years, while life insurance continues well into old age—ideal for legacy and estate planning.
Life insurance rewards long-term commitment with periodic bonuses or guaranteed returns, depending on the type of life insurance. Term insurance doesn't offer bonuses but gives the flexibility to enhance your cover with riders tailored to your life stage.
Tax-saving shouldn’t be the only reason to buy insurance—but it’s a welcome bonus. Whether you choose term or life insurance, both give you yearly tax breaks and ensure your family’s payout is fully tax-exempt.
Need to exit your plan midway? Life insurance gives you that option, with some returns depending on how long you've paid. Term plans usually don’t return anything unless you’ve opted for paid-up or return-of-premium features.
Types of term and life insurance policies
Understanding the types of term and life insurance plans helps you see how each option is designed to meet different financial needs and life goals. While term insurance focuses on pure protection for a specific period, life insurance offers broader solutions that may include savings, investment, or lifelong coverage. The table below breaks down the key types of term and life insurance plans in a simple, side-by-side format for quick and easy comparison.
Insurance category
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Type of plan
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What it means
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Most suited for
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Term insurance
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Level term plan
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Offers a fixed sum assured and premium for a defined policy term, ensuring consistent protection throughout.
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Individuals seeking stable, affordable life cover.
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Term insurance
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Increasing term plan
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The sum assured increases over time to keep up with inflation and rising responsibilities.
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Young earners with growing financial commitments.
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Term insurance
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Decreasing term plan
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Coverage reduces gradually, usually in line with loan repayment schedules.
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Borrowers with home or personal loans.
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Term insurance
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Return of premium plan
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Refunds total premiums paid if the policyholder survives the term.
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Those wanting protection with some payout certainty.
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Life insurance
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Whole life plan
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Provides lifelong coverage, often up to 99 or 100 years.
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People planning long-term legacy and family security.
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Life insurance
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Endowment plan
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Combines life cover with guaranteed savings over a fixed period.
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Risk-averse individuals with defined financial goals.
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Life insurance
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ULIP
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Links insurance with market-based investments.
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Investors seeking growth with life cover.
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Life insurance
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Money-back plan
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Pays periodic survival benefits during the policy term.
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Individuals needing regular payouts along with protection.
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This comparison makes it easier to match each plan type with your protection needs, financial priorities, and risk appetite.
How to choose between term and life insurance: A step-by-step guide
Here is a quick guide to help you choose between term insurance and life insurance:
- Understand your goals – Consider whether you want pure financial protection (term insurance vs life insurance) or savings plus protection.
- Assess affordability – Evaluate the premiums; term plans are typically more affordable than whole life or endowment plans.
- Review the duration – Term insurance offers coverage for a specific period, while life insurance covers you for life or a longer term.
- Check returns – Whole life or endowment plans build a cash value, while term insurance offers no returns if you survive.
- Compare riders – Add-ons like critical illness or accidental death riders are available in both types.
- Evaluate family needs – Ensure the policy covers your family’s future expenses, debts, and education costs.
