Difference Between Term Insurance and Life Insurance

TeamAckoSept 25, 2024

Choosing the right insurance plan is an essential financial step that can protect your family in the event of your demise. Two of the most common insurance plans are term and permanent life insurance. While both provide death benefits, there are some critical differences that you need to understand before purchasing a policy. This blog will give a detailed comparison of term and permanent life insurance life insurance to help you make an informed decision.

Contents

• What is Term Insurance?
• What is Permanent Life Insurance?
• Detailed Comparison Between Term Insurance and Permanent Life Insurance
• When Does Permanent Life Insurance Work Better Than Term Insurance? 
• When Does Term Insurance Work Better Than Permanent Life Insurance? 
• ACKO Life Flexi Term Plan 
• Conclusion 
• Frequently Asked Questions 

What is Term Insurance?

Term insurance, also known as term life insurance, provides life coverage for a specified term - usually between 1 and 30 years. It pays the death benefit if the policyholder dies during the coverage term.

Term Insurance is best for temporary life insurance needs or supplementing existing life insurance. It is ideal for mortgage protection, family income replacement, etc.

What is Permanent Life Insurance?

Permanent life insurance provides coverage that never expires, unlike term plans. These plans offer lifelong protection, with the policy paying out the death benefit whenever the policyholder dies, whether during the early or later years of the policy. Permanent life insurance is ideal for permanent family protection, wealth creation through cash value, and legacy planning.

Detailed Comparison Between Term Insurance and Permanent Life Insurance

As seen in the comparison above, term insurance provides affordable protection for temporary needs, while life insurance ensures lifelong coverage and wealth accumulation. Term insurance may be more suitable if your priority is only protection, while life insurance plans work better for permanent family protection and financial planning. 

When Does Permanent Life Insurance Work Better Than Term Insurance? 

Here are some scenarios when permanent life insurance may prove to be a better choice than term insurance: 

1. Permanent family protection: Life insurance provides lifelong coverage to secure your family's future, compared to term insurance, which covers only a limited period. 

2. Building cash value: Part of the premiums in life insurance go towards building a cash value that grows over time and can be borrowed against in times of need. Term plans do not offer this added advantage.

3. Wealth creation: The cash value accumulated over the years in a life insurance plan can supplement retirement savings and leave a legacy. 

4. Better suited for long-term goals: Considering lifelong coverage, life insurance is better than term insurance for primary long-term goals like children's education and retirement planning.

5. Comprehensive financial planning: Life insurance plans that offer maturity benefits and coverage allow policyholders to enjoy the dual benefits of protection and stable returns.

When Does Term Insurance Work Better Than Permanent Life Insurance? 

Here are some scenarios when term life insurance may prove to be a better choice than permanent life insurance:

1. Need Coverage for a Specific Period: Suppose you need insurance only for a specific period to cover a home loan or children's education. Term insurance protects for a set period, allowing you to match the length of coverage to your needs.

2. Tight Budget: Term insurance premiums are substantially lower than permanent life insurance premiums, making it more affordable.

3. For Young: Term insurance is much cheaper than permanent insurance, especially if you get it at a young age. It allows you to get high coverage even with low premiums.

4. To Maximise Coverage: Term insurance provides a much higher death benefit for the same premium as permanent life insurance, maximising the protection you can provide.

ACKO Life Flexi Term Plan 

The ACKO Life Flexi Term Plan offers unmatched flexibility. You can customise your coverage according to your evolving life stage needs, increase or decrease your Sum Assured, and policy tenure to match your financial commitments. This innovative term plan ensures your family's financial safety while not burdening your wallet. 

Conclusion 

Term insurance provides temporary protection for a specified duration at a low cost. In contrast, permanent life insurance ensures lifelong family protection and wealth creation through cash value and a death benefit. So, select the right plan according to your requirements and protect your loved ones today.

Frequently Asked Questions 

Here are some frequently asked questions related to difference between term insurance and life insurance.

What is the duration of coverage provided by life insurance?

Life insurance covers your entire lifetime as long as the premiums are paid.

Is it good to buy term insurance?

Yes, having a term plan is vital to protect your loved ones’ financial stability in case you’re no longer there to provide for them. 

Who is eligible for term insurance?

Individuals aged between 18 and 65 years are eligible to purchase a term insurance plan.

What’s the maximum coverage I can get for an Accidental Death Benefit rider?

As per the IRDAI, you can purchase an Accidental Death Benefit Rider with coverage up to three times (3x) the base sum assured of your life insurance policy.

Does a term insurance plan offer maturity benefits?

No. It does not provide maturity benefits. However, term insurance with return of premium (ROP) plans refunds the premiums paid if the policyholder survives the policy's term.

Is a term plan tax-free?

The death benefit of a term plan is entirely tax-free.

What new options do I have for adjusting my premium?

As per the IRDAI, you have the option to decrease the premium amount or sum assured of your life plan after 3 years instead of the previous restriction of 5 years.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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