Before you choose a term insurance plan or ponder a life insurance policy, it helps to understand the essential differences between the two.

It is certainly true when they say that the only constant in life is change. There is truly nothing more unpredictable than life, with all its ups and downs and its propensity to throw a curveball at one when one least expects it. One may be content with one’s life and make big plans for the future, only to encounter a sudden tragedy that turns one’s world upside down.

Since one cannot control the future, one must certainly influence the course of future events by taking insurance. In times of high inflation and rising living costs, the expenses of healthcare, education and housing can take a huge toll on one’s finances.

Having a good life insurance policy can hold you in good stead for the future – you may be absent from your loved ones’ lives but you can still protect them from financial uncertainty with a large sum insured amount.

However, you may be left confused if asked to make the choice between term plan insurance and a life insurance policy. Though both are life insurance plans, there are significant differences between the two. Knowing what these differences are can help you make the right choice before buying the right plan.

Parameter Term insurance Whole life insurance
Tenure of the insurance plan A fixed ‘term’ or ‘tenure’ of time (10, 15, 20 years), hence called ‘term plan’ It is valid for the life time of the policy holder
Benefits There is a death benefit only Maturity benefits are provided
Returns There are no returns Low returns are offered on the plan
Affordability Very affordable premiums, low premium payments Expensive policies, with high premium payments
Good investment? It is not an investment policy Yes, especially when they coincide with major life events
Market-linked? No Yes, especially with ULIPs
Bonus offered NIL Yes, with claim-free policies
Tax benefits? Premiums are not taxed Premiums may be taxed
Surrender value NIL. Policy is terminated when premiums are not paid There may be a surrender value basis the surrender of policy
Revision option NIL Yes

You can purchase an online term plan to further reduce the premium amount. Before making your choice, be sure to use a term plan premium calculator to find the premium payable vis-à-vis the desired sum assured. If you feel that you wish to get maturity benefits since you will pay premiums for a certain number of years, it is best to opt for whole life insurance plans. However, it is not prudent to merely choose an insurance product based on the premium amount: this decision must be guided by your current finances, your financial goals and the amount of money your family will need to realise its future goals.

Posted by The Indian Economist