9-point difference between term and life insurance

Covid pandemic has made us realise the significance of insurance coverage. Be it term or life insurance, people need an insurance coverage to protect near and dear ones in adverse situations.

But often we fail to understand the differences between term insurance and life insurance. Money9 talks to insurance experts and chalks out a nine-point understanding.

Premium

As term insurance plans are pure protection plans, premiums are highly affordable. Endowment insurance plans offer a mix of protection and saving and hence the premiums are much higher.

Maturity benefits

Term insurance policies do not offer any maturity benefits to the policyholder in case of survival beyond the policy term. On the other hand, in a traditional endowment policy, the policyholder will receive the sum assured on maturity along with the accrued bonuses, if any.

Death benefits

In case of unfortunate demise of the policyholder, the nominee will receive the sum assured in case of a term insurance policy, whereas, in case of a traditional life insurance, the nominee will receive the sum assured along with the accrued bonuses, if any.

Medical requirements

Term insurance plans offer high risk cover for low cost. As the amount of risk cover is high, the medical requirements are usually more stringent as compared to traditional life insurance policies.

Coverage

Most term insurance plans offer coverage for a limited period. On the other hand, life insurance plans like whole life insurance offer insurance cover for lifetime.

Cash value and surrender value

Traditional life insurance policies have an in-built savings element apart from the risk cover. With every passing year, the investment component in the policy earns interests or bonuses, building up a cash value.

Term plans do not have a cash value or surrender value.

Loan facility

Term insurance policies do not offer loan facility. Life insurance policies offer loan facility to policyholders after an initial waiting period which is usually three years in most cases.

Bonus

A part of the premium paid by policyholders towards traditional life insurance policies is re-invested by the insurance companies. The earnings generated by these investments, are distributed as bonus. However, term insurance policies are not liable to receive any bonus.

Goal-based planning

Unlike term insurance plans which lack maturity benefits, the proceeds of traditional endowment life insurance policies can be used for funding various goals like retirement or others.

Expert comment

Experts always advise everybody to opt for an insurance coverage, be it term or life insurance.

“Life insurance is a must for all those with dependents. While term insurance is ideal for those seeking insurance cover for pure protection, the savings and investment component associated with traditional life insurance can be beneficial for those looking to achieve their goals in a timely manner,” said Abhishek Mishra, CEO & principal officer, Bonanza Insurance Broker.