There are so many different options to choose from when it comes to life insurance and it can be hard to know which one is best for you. Term life insurance plans and investment life insurance plans are the two best life insurance plans. It is important for customers to know the difference between term and investment plans in life insurance before opting for one.
Term life insurance is a type of life insurance that provides coverage for a specific period, usually 10 or 20 years. The consumer pays premiums for a set period and then the policy expires. On the other hand, investment plans are designed to provide the opportunity for wealth creation by investing over some time and getting guaranteed returns.
In this article, we will compare the two most common types of life insurance plans, term, and investment plans. In addition, we will be comparing an in-depth analysis of each aspect with pros and cons. comparing those with one another can help you make the best financial decisions for your life.
What is Term Plan?
Term life insurance is a type of life insurance where the coverage does not last for the entire lifetime. It is for a specific period, called the "term". Term life insurance is usually cheaper than whole life insurance and it does not build cash value. A term plan provides coverage for the insured's death, disability, or critical illness. They are also easier to get because they require less medical information and have lower premiums.
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 Plans
- Financial Protection: The main purpose of term insurance is financial protection. If the sudden demise of the insured can put the family in peril. With no regular income, the family may soon face a financial crisis. Having a term insurance policy helps your family come out of any financial crisis after your sudden demise.
- 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.
- 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.
- Riders: Riders may include coverage against personal accidents, critical illness, loss of income due to a disability, etc. Can be added to all types of term insurance policies.
What is Investment Plan?
Investment plans are a type of life insurance that protects against the risk of death while also providing a return on the investment. The buyer invests money in the policy and receives periodic payments from the proceeds of the investments. It provides the opportunity for wealth creation by investing over some time and getting guaranteed returns. Life insurance companies offer various investment plan options for wealth creation.
Types of Investment Plans
- Unit Linked Investment Plans
- Endowment Life Insurance Plans
- Money Back Life Insurance Plans
- Public Provident Funds
- Fixed Deposits
- Mutual Funds
- National Pension Scheme
- National Savings Certificate
- Tax Saving Mutual Funds
- Bonds
Benefits of Investment Plans
- Wealth Creation: Investment insurance plans are an option to help people create wealth. Investment insurance plans provide a guarantee on your investment. It means that if you invest in a company, your investment will be protected in case of any financial crisis or natural disaster. It also helps in the future, when you would require funds for a child’s education, child’s marriage, retirement, pension, etc. life insurance investment plans will financially aid you.
- Financial Protection: Investment plans provide financial protection for the future. They are a very flexible tool for people who want to save for their retirement, children’s education, or other long-term goals and also take care of the family financially as both survival and death benefits are provided.
- Death Risk Coverage: Investment plans provide death risk coverage. The plans are designed as a savings strategy to help people mitigate the risks of unexpected expenses.
- Tax Benefits: Investment plans are not only risk cover or wealth creation plans, but these plans also help in tax savings. Premiums and payout are exempted from tax as per sections 80C and 10(10D) of the income tax act law 1961.
- Loan Facility: You can take a loan from the investment life insurance plans in case of emergency. But the rate of interest differs from one company to another company.
Comparison Table: Term Plans vs Investment Plans
| Parameter |
Term Insurance |
Investment Plans |
| Benefits |
It offers only death benefits. There are no additional benefits. |
Investment plans are a combination of insurance and investment components. |
| Aim of Cover |
Term life insurance aims at only providing financial help to your nominees in case of your demise. |
An investment plan aims to help you save for your future goals. It provides guaranteed returns and caters to the need for future savings. |
| Tenure |
Fixed tenure option. |
Fixed tenure: 5 years or may vary with the insurer. |
| Premium |
Low premiums compared to the investment plan. |
High premiums compared to term plans. |
| Premium Pay-out |
There is no refund of the premium until a claim is made about the death of the policyholder. |
The main reason to buy investment plans is fixed returns over the long term. |
| Death Benefits |
Payable |
Payable |
| Maturity Benefits |
Not Payable |
Payable |
| Loan Availability |
No loan availability in term life insurance plan. |
You can take a loan from investment life insurance plans. |
| Payout Options |
In term insurance, the nominee receives the sum assured in a lump sum or equal installments, or a combination of both. |
In an investment plan, the payout is a lump sum either on the death of the policyholder during the policy term or as a maturity benefit on completion of the policy term. |
| Plan Period |
It depends on the term you have selected when buying the insurance policy. |
You must wait until the lock-in period of five years to make partial withdrawals. |
| Tax Benefits |
Tax benefits under section 80C and benefits under section 10(10D) of the Income Tax Act, 1961. |
Tax benefits under section 80C and benefits under section 10(10D) of the Income Tax Act, 1961. |
Conclusion
Term life insurance provides coverage for a specific period. The customers pay premiums for a set of time and then the policy expires. On the other hand, Investment life insurance provides coverage for a specific period and also has an investment component that accumulates cash value in addition to death benefits.
The decision of whether to invest or buy term insurance is a difficult one. This is because many factors need to be taken into consideration before making a decision. Investments are usually used for retirement and other long-term goals, while term insurance helps protect your family in the event of your death or disability.
Check all the features and benefits of term life insurance plans and investment life insurance plans before concluding on the right insurance policy. Compare life insurance quotes for the best life insurance plans in India from top insurers online at PolicyBachat.com.