Difference Between Term Insurance and Life Insurance

Life insurance policy can be defined as a contract where the life of an individual or individuals is insured by the insurance company or the insurer in lieu of premiums being paid. Life insurance is actually a pretty broad concept and encompasses various types of insurance plans, such as:
• Term Plan
• Whole Life Plan
• Endowment Plan
• Money-back Plan, etc.

Each of these types of life insurance plans are similar in one way – they offer life cover or death benefit to the policyholder. Life cover refer to the sum of money payable by the insurer to the nominee on the death of the life insured, as per the policy contract. Beyond this similarity each type of life insurance plan is unique and can offer additional benefits such as maturity benefit, survival benefit and even accrued bonuses.

Term insurance or term plan is arguably the most commonly sought life insurance plan and it is often considered as the purest form of protection policy. In a term insurance, the life cover benefit is offered for a specified period of time also known as a “term”. In case the life insured outlives the policy term, the policy terminates and no maturity benefits can be availed by the policyholder.
So, the life cover benefit is only available during the policy term, i.e. when the policy is in force. In the event of the life insured’s death within this time period, the insurer will pay the nominee the life cover amount i.e. sum assured as per the term insurance policy contract. After the payout, the policy terminates.
Present day term plans offered by insurance companies do have some additional benefits such as return of premium, critical illness and disability rider, accidental death benefit, terminal illness benefit, waiver of future premium and so on. These additional benefits are usually implemented through riders or add-ons that usually require payment of additional premium over and above the base premium of the term plan.
Now that we have the basic idea of both life insurance and term insurance, let’s list the key differences when comparing life insurance vs. term insurance.

The below table compares some the key features between life insurance and term insurance:

While you now have a clearer understanding of the key differences when it comes to life insurance vs term insurance, you might still wonder which is better suited to your needs. Here are a few questions that you need to answer in order to help you solve your life insurance vs term insurance purchase dilemma: