When we think about securing our beloved’s future, buying term life insurance is always the first thought that strikes our mind. It’s one of the most suitable choices for securing your loved ones financially, even after your death. But some other people also hear the term “life insurance” and get confused; aren’t they the same? No, they’re not. Though both offer life cover, they work differently.
To decide correctly, it’s necessary to know how they vary and which one is better for you. Let’s make it simple.
Understanding the Fundamentals
Let’s first know what these two insurance policies are before making a choice.
Term Insurance is a plan that gives protection for a certain period, let’s say 20, 30, or even 40 years. If the insured person passes away within that term, his/her family receives a lump sum amount. However, if the individual outlives that term, the policy ends with no claim (unless it is a special plan with return of premium).
Life Insurance, on the other hand, usually pays out for your life or for an extremely long period of time. Not only is it financial security, but it also enables you to save or build wealth in the long run. In simple words, term insurance is just a cover, while life insurance is covered with savings.
The Common Confusion
People become confused when they hear the term life insurance vs life insurance because both seemingly provide the same thing: protection. They are, however, very different. You can describe it like this:
- Term insurance is renting a house; you pay for protection for a short period of time.
- Life insurance is owning a house; it’s yours, and it builds value over time.
Both are advantageous. The right one depends on whether you desire low-cost cover for a limited period or long-term protection that also enables you to save.
What Is Term Insurance?
Term insurance is the simplest and lowest-cost type of life cover. You pay a small premium monthly or every year, and your family gets a huge financial cover in case anything undesirable happens to you during the policy term. For instance, if a person aged 30 years purchases a ₹1 crore term insurance policy and pays approximately ₹800–₹1,000 as monthly premiums, the family will get ₹1 crore if the person dies during the term. If the person survives beyond the policy tenure, there is no claim, and the policy merely lapses.
Term insurance is perfect for those who have dependents, like a spouse, children, or parents and want to know that their loved ones will be able to maintain their standard of living and pay bills even if they are not there.
What Is Life Insurance?
Life insurance encompasses policies like whole life policies and endowment plans. Not only do these policies provide life cover, but they also help you save money.
- Whole Life Insurance covers you until you die, usually until you are 99 or 100 years old. Your family receives the pay whenever you pass away, regardless of the time.
- Endowment Plans are savings plans as well as insurance. Part of your premium is used towards your life cover, and the rest is invested. You receive a maturity amount if you survive until the end of the policy duration.
As life insurance contains savings and returns, it is higher in cost compared to term insurance. Yet, it may prove useful to those who wish to achieve long-term financial goals like the education of their children, marriage, or retirement fund.
Differences Between Term and Life Insurance
The two differ mostly in terms of cost, duration, and application.
- It is term insurance for a specific period of time, like 20 or 30 years, and just gives protection. It’s affordable and offers maximum coverage. You don’t get money back unless you’ve taken a plan which has a return of premium.
- Life insurance, on the other hand, stays with you for your entire life or at least for a very long time and also helps you to build savings. You need to pay more premiums, but you can expect maturity benefits or a payment after the end of the policy period.
Generally speaking, term insurance provides maximum protection for the minimum cost, and life insurance provides protection for life with some returns.
Which One Should You Choose?
Your choice is determined by your goals and situations. If your goal is purely protection, that is, you want your family to be economically provided for if anything happens to you, term insurance is the best alternative. It’s affordable, simple, and straightforward. You can buy a comprehensive cover at a very low price, especially if you’re healthy and young.
But if you prefer a plan that would help you save money too and leave you with something to bring home by the end of the policy, life insurance could be a better option. It would be good for those who would prefer savings coupled with protection. Only keep in mind that term insurance is generally ten times cheaper than life insurance for the same cover.
Why Term Insurance Is Usually the Intelligent Option
The majority of financial experts would recommend term insurance as it offers the greatest value for money. You can obtain a large cover at a very low cost and ensure your family is well taken care of, even if you are no longer with them. Since term plans are lower in cost, you can also put your saved amount into other sources like mutual funds, fixed deposits, or retirement plans. This will allow you to create wealth independently while securing your family. For most working individuals, especially youth with a loan or family responsibilities, a term plan is the perfect starting point.
When Life Insurance Might Be Better
There are always going to be some situations where life insurance will be preferable for you. You might like it if:
- You would prefer lifetime coverage instead of a shorter-term policy.
- You like a policy which pays you some money back after several years.
- You would prefer to get into the habit of saving by putting money away regularly.
- You prefer the idea of leaving a guaranteed inheritance for your family.
In such circumstances, it can be worth paying slightly more for life insurance since it provides security and potential financial reward in the future.
Can You Have Both? Yes!
You do not have to pick between having only one of them; you can quite simply have both term and life insurance. For example, you can buy a term plan to give great protection to your family for a low premium, and at the same time, you can buy a life insurance plan to earn savings or wealth. This is one of the most popular methods for most people as it gives both worlds’ best – security and savings.
How to Choose the Right Plan
The following are some simple steps to help you:
- Know Your Needs: Think about your long-term objectives, home and household costs, and plans.
- Check Your Budget: Make sure you select a policy that you can pay in the long term.
- Compare Online: Utilise reliable comparison websites to evaluate premiums, benefits, and claim rates.
- Read Carefully: Always review the protection details, exclusions, and benefits prior to buying.
- Seek Advice: In case of uncertainty, seek the advice of a financial planner who will guide you based on your needs.
Conclusion
Life and term insurance are both useful tools of financial planning. It’s the one that suits you best, your objectives, earnings, and family needs. For those who want low-cost cover with peace of mind, go for term insurance. It’s simple, inexpensive, and offers top coverage.
If you require protection for life and can afford to forego savings in your policy, life insurance could be a better option.
Either way, the idea is to start early. The younger and healthier you are, the lower your premium will be and the sooner your loved ones’ financial future will be secured. So, take a minute today to think about your needs and select the plan that works best for your life. Because peace of mind isn’t something you buy later, it’s something you build today.
