Life insurance is a contract that pays out benefits to the policyholder or their beneficiaries in the event of the death of the insured. Term insurance, on the other hand, is a contract that pays out benefits if an event like death or disability occurs during the term of coverage.
Term life insurance provides coverage for a specific period of time and pays out benefits only if a certain event happens during that period. It is cheaper than life insurance because it does not cover you for your entire life.
Life Insurance
Life insurance is a contract between the insured customer and the insurance company in which the life insurance company assures to cover the life of the insured customer or promises to take care of the investment and returns in addition to the life coverage, in return for a periodical amount known as “Premium”. Life insurance is considered one of the best financial planning tools available in the markets as it covers both the investment and insurance parts under a single policy. The life insurance policies are designed to protect the life of individuals and therefore provide financial security to the deceased family. The premium paid life insurance policy is depends on the plan selected by the customer.
Types of Life Insurance Policies:
- Term Insurance
- Whole Life Insurance
- Endowment Insurance
- Unit Linked Insurance
- Money Back Plans
- Child Life Insurance Plans
- Pension Plans
Benefits of Life Insurance
- Financial Security:
A life insurance policy helps to minimize the risk of financial difficulties which would be faced by the families in case of the sudden death of the policyholder. According to the life insurance definition, the insurance provider agrees to pay the nominee or beneficiary the pre-defined sum assured. As a result, even in the policyholder’s absence, his family stays protected.
- Long Term Savings:
Apart from life insurance cover some life insurance plans also offer you the opportunity to create wealth. If one wants to make long-term investments, it’s important to think about life insurance meaning. Such insurance plans help you make systematic savings and create wealth that can be used for your future goals.
- Tax Savings:
Life insurance offers tax dual benefits under prevailing laws as per Income Tax Act, 1961. The life insurance premium paid can be availed as a tax deduction under section 80C. You can avail of a deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act. The maturity insurance plans may be completely tax-free. This tax benefit is under Section 10(10D) of the Income Tax Act.
- Save Money:
The life insurance policy gives financial security to the family of the policyholder. The premium paid by the customer is depending on age, life expectancy, health, and gender. Life insurance gives you the ability to stick at low premium rates while you’re young. If you buy the same policy when you are older, you will be paying a much higher premium compared to if you bought the same plan when you were younger.
Term Insurance
term insurance plan is a type of life insurance policy that provides life insurance cover against the fixed premium paid for a term policy. Term life insurance plans offer higher insurance coverage at lower premium rates. If an individual can purchase a 1 Crore term insurance plan at the lowest premium per month. The term insurance plan provides financial coverage to the customer even if he/she dies in the policy period.
Types of Term Insurance Plans:
- Return of Premium Term Insurance
- Increasing Term Insurance Plan
- Decreasing Term Insurance Plan
- Level Term Insurance Plan
- Critical Illness Term Plan
- Waiver of Premium Plan
- Accidental Disability Plan
Benefits of Term Insurance
- Affordable Premiums: You can get a high-value life cover from a term insurance plan by paying an affordable premium amount. Premium payments can be made either monthly/half-yearly/yearly. The earlier you buy a term insurance plan, the lower the premium amount you have to pay.
- Pay-out of Sum Insured: In case of the unfortunate demise of the person insured, the family members will receive the sum assured as a pay-out. The policyholder can choose for this pay-out to be in the form of a lump sum, an income that is either monthly or annual, a combination of a lump sum and income, or an increasing income at the inception. This will help take care of financial needs and household expenses among other costs
- Critical Illness Coverage: In case optional Critical Illness Coverage is included in your term insurance plan, you will get a lump-sum payout upon diagnosis of any critical illness1 that is covered in the plan
- Accidental Death Benefit: You can add the Accidental Death Benefit to your term insurance plan. This will offer protection against any mishaps in the future
- Coverage for Terminal Illnesses: Term insurance plans can give you lump-sum pay-outs in case of diagnosis of terminal illnesses2 such as AIDS
- Tax Benefits: You can get tax benefits on premiums paid under Section 80C along with premiums paid towards critical illness benefits under Section 80D. The lump-sum amount received by nominees as the sum assured/death benefit is also exempted from taxes subject to Section 10 (10D) of the Income Tax Act, 1961.
Compare Life Insurance vs Term Insurance
| Parameter |
Life Insurance |
Term Insurance |
| Benefits |
It offers two benefits of both savings and protection |
It offers only death benefits. There are no additional benefits |
| Coverage |
Premature death and survival until the policy tenure are covered |
Only premature death is covered |
| Tenure |
It has the option to change the tenure of the policy |
It has a fixed tenure option |
| Premium |
High premiums |
Low premiums |
| Premium Pay-out |
There is premium pay-out if the policyholder survives the policy period |
There is no refund of premium until a claim made the death of the policyholder |
| Death Benefits |
Payable under all plans |
Payable |
| Maturity Benefits |
Payable |
Not Payable |
| Loan Availability |
The policyholder can opt for a loan facility against the whole life insurance plan. |
No loan availability in term life insurance plan |
Conclusion:
Both term insurance and life insurance policies are required to secure our loved ones and both are needed to comprehensively cover all the aspects of life. Insurance is an effective way to manage risk factors and provides peace of mind. Different insurance providers offer different types of benefits along with tax benefits under specific terms and conditions. Remember to compare life insurance policies to find the best plan.
PolicyBachat is an online insurance web aggregator which helps in selecting insurance policies online for its customers based on the customer’s requirements. Please visit our portal to compare insurance policies from top insurance companies and select the best life insurance policy which fits all your requirements.