Insurance schemes provide a number of benefits to policyholders in case of any untoward event. Be it life, vehicle or home insurance these schemes help people financially safeguard themselves and their properties in case of any unfortunate circumstances.
One issue people may face while opting for insurance is the confusion about whether to go in for term insurance or life insurance. At first glance, the policies may seem similar. But, there are a number of differences between the two plans. Take a detailed look at how term and life insurance differ from each other and which policy will be more beneficial for you.
What is life insurance?
This insurance is valid for the duration of a policyholder’s life, provided they keep paying the premiums. It provides extended coverage to the policyholder and their family/nominees. The policy also includes a cash value amount, a kind of savings account that grows over the years. The policyholder can borrow against the cash value while they are alive. The premiums are costlier.
What is term insurance?
Term insurance offers coverage to the nominee/family for a limited number of years. There is no provision of cash value. The premiums are cheaper.
Life insurance vs term insurance: Differences
The major difference is in terms of premiums, surrender of policy, maturity and death benefits.
Death benefit: A term insurance can provide death benefit only if the policyholder passes away during the policy period. A life insurance can give both death benefit and maturity benefit to the insured.
Insurance premiums: Premiums paid both term insurance and life insurance may differ widely. While premiums will be lower for term insurance, in case of life insurance premiums are generally higher.
Surrender of policy: A term insurance policy is easier to surrender. All one has to do is stop paying the premiums and the benefits of the policy will end. In case of life insurance, the maturity benefit is given only if the life assured completes all premium payments. If the policyholder surrenders the insurance, they will only get the premium back, after applicable deductions.
Which is better for you: Term insurance or life insurance?
It depends on the financial needs of the policyholder. A term insurance can be more beneficial if one is opting for a policy that they need for a shorter duration. They will be able to save on premiums then. If an individual wants to go in for coverage that also offers them cash value, life insurance can be a better option.