This question is sure to have crossed every individual’s mind who, at some point, has thought of buying term insurance or who has been exposed to the omnipresent ads of life insurance. Should you buy term insurance or should you buy life insurance? Is there any difference between a term plan and life insurance? And if yes, which one is right for you? 

In this article, we’ll not only look at answering all these questions and learn about term insurance in detail, but also briefly understand term vs life insurance and the various types of life insurance products popular in India. 

Term Insurance Vs Life Insurance - What's the difference between Term Insurance and Life Insurance? 

Let’s first look at answering the question - What is Life Insurance? A Life Insurance policy provides financial security to the family of the insured, in case of their death during the policy period, and in some cases a maturity benefit to the insured person, after a set period of time. There are several types of life insurance products, and term insurance is one of them - meaning, not all Life Insurance products are term plans. 

It is very important for us to understand the true essence of life insurance and then decide which type of product suits us and our family best, at various stages of our lives.

Most of us live a life full of financial responsibilities & aspirations - we want to secure the best quality of life for our family, we want our children to get educated at the best of schools and colleges, we want to spend lavishly on their weddings, we want to buy a beautiful house to live in (most of the times on loan for which EMIs are paid throughout our working life), etc.

But, what if in an unfortunate turn of events, we were to die young, before fulfilling these financial responsibilities? A lot of us witnessed this first hand in and around our families recently when COVID-19 struck us hard - many families lost their dear members at a premature age. Emotional turmoil on one side, such incidents leave the bereaved families exposed to financial hardships & jeopardize their survival, leave alone any dreams. 

The best way to find peace of mind & ensure the financial security of our beloved family members against all odds is to buy a Life Insurance policy that provides the family with a large enough sum of money, in case of our death. 

Let’s take a quick look to understand more about Life Insurance and how it is different from a term insurance plan. 

Why should one have a Life insurance cover? 

If you are one of the main earning members of your family and your family’s expenses depend on your income, then you must consider buying Life Insurance Cover. With the help of this money, your family can fulfill their dreams, both in the short-term and the long-term without making any compromises.

You could consider buying a life insurance cover in case any of the following is true for you - 

• You have the responsibility of dependents like- aged parents, wife, and children.
• You haven’t saved enough corpus for your family’s current and future financial needs.
• You have taken a large loan that will need to be paid off by your family, for example- a home loan
• You have major unfinished responsibilities- like children’s education and weddings. 

Types of Life Insurance Plans

There are 3 broad categories of Life Insurance Products available in India - 

1. Linked Insurance Plans - they invest a large portion of the premium in equity markets, thus making final returns linked to market performance. They are ideal for customers who are willing to stay invested in the plan for at least 7 to 10 years. 
2. Non-Linked, Participating Plans - these plans don’t invest the policyholder funds in markets, so they are called Non-Linked. But, they give policyholders a chance to participate in the Insurer’s profits. The periodical bonuses in your policies are declared based on Insurer profits. 
3. Non-Linked, Non-Participating Plans - these plans neither invest the policyholder funds in markets nor do they participate in Insurer’s profits. Thus, they are called Non-Linked, Non-Participating plans. The final returns are exactly known in these plans on the date of sale & they are ideal for risk-averse customers. 

All Life Insurance products filed with IRDAI and sold in India fit into one of the above 3 types. Let’s look at some of the popular versions - 

1. Term Insurance- It’s a pure risk cover that pays the Sum Assured to the nominee(s) of the policyholder in case of death of the life insured during the policy term. Since there are no returns on policy maturity, Term Insurance is usually the cheapest form of life insurance. 
2. Term Return of Premium (TROP Plans) - These are Term Plans that pay back the total premium amount to policyholders in case of survival through the policy term. They are popular with a section of people who prefer a refund of premiums in case of survival.
3. Whole Life Insurance Plan- These plans cover the life insured for practically the entire lifetime i.e. 99 or 100 years of age. In case of death of the life insured during the policy term the Sum Assured is paid to the nominee(s). On the other hand, in the rare case of their survival till 100 yrs of age, the Sum Assured is paid to them as a special maturity benefit. These plans are preferred by some people who want to leave behind a legacy for their children, as it is almost certain that people will die before they turn 100 yrs.
4. Endowment Assurance Plan or Endowment plans - As the name suggests, the primary purpose of endowment plans is to create a corpus out of sustained savings which are pooled into the plan as policy premiums. They are usually sold for 10 plus years. Although surrender is allowed after 2 annual premiums are paid, it comes with heavy penalties. The Life Insurance cover in such plans is usually 7 to 10 times the annual premium. So these plans shouldn’t be bought as a Life cover but as merely a long-term savings instrument by those people who are not very disciplined with money. 
5. Money-back Plan- They are a form of the endowment plan. The only difference is they give periodic returns (a certain percentage of policy Sum Assured) as survival benefits to the policyholders throughout the policy term. Like with endowment plans, they carry a certain death Sum Assured which is usually 7 to 10 times the annual policy premium. 
6. Unit linked Insurance Plan- Also known as ULIPs, these plans invest your premium in markets and thus promise to generate higher possible returns on a premium over 10 to 15 years. They work well for young buyers who have a higher risk appetite & can afford to stay invested for the long term without worrying about short-term market volatility. 
7. Pension Plan- The goal of a pension plan is to generate a corpus over the long term & give the policyholders a sustained monthly income for a certain number of years after policy maturity. The pension plans usually give annuity options with the return of the purchasing price and without the return of the purchasing price for single life and/or joint lives (husband and wife).
8. Child Insurance Plan- The child plans come with an inbuilt Waiver of Premium Rider on the death of the insured parent. This ensures that the goal envisaged by the insuring parent for their children is fulfilled even if they were to die a premature death. As a result of the WOP rider, the Insurer/Company pays all future premiums due in the child plan and all planned benefits are paid out to the kids (nominees) as per the original insurance agreement. 

Of all these types of life insurance listed above, term insurance is the simplest, cheapest and in our opinion, the best type of life insurance. Let’s learn in detail about term insurance in the next part of this article. 

What is Term Insurance? 

Term Insurance is the simplest type of life insurance there is! It is the cheapest and most efficient way to protect your family’s financial future, in case your death happens before you create enough wealth for their needs. 

As long as you pay all your premiums on time, and your term policy remains active - your family will receive a sum of money (either in one shot as a lump sum or as a regular monthly income - or a combination) - that they can use to fund their existing lifestyle and future needs. 

In our opinion, term insurance is the best life insurance policy there is, and if you have financial dependents you must invest in a term insurance plan. 

Term Insurance Vs Life Insurance: Benefits compared 

The main advantage of term insurance is that it is extremely cheap, compared to any other life insurance product in the market. You can get a cover as high as 1000 times your annual premium - and no other plan even comes close to providing such a large cover. Further, most term insurance plans provide you with the option of customizing your plan through a variety of features like increasing covers, limited pay option, and claim payout option as per your and your family’s comfort. 

Many term insurance plans also offer you additional benefits called Riders that can provide additional payouts or advantages in specific circumstances. Some of the most popular riders are- Critical Illness Rider, Accidental Death and Disability Rider, and Waiver of Premium Rider. 

Is there a disadvantage with term insurance?

While term insurance policies provide you and your family with multiple benefits, there’s one - and just one single drawback. Unlike other life insurance products, in term insurance, you will not receive any payback, if you survive the term. 

Other life insurance policies, on the other hand, provide you a guaranteed payback even if you are alive and outlive the maturity of your policy duration. 

What you should note here is that term insurance is a pure risk plan. The purpose of term insurance is not to help you build wealth or plan your retirement. It is purely to protect your family’s financial needs, in case you pass away early. And, the insurance company provides you that guarantee for a very low fee - your regular premiums. So, instead of looking at this ‘drawback’, one must clearly understand the purpose of term insurance and invest in it for their family’s protection. 

How to find the perfect term insurance plan for you?

Term insurance is a simple policy but comes with a variety of features that need to be customized to fit your family’s needs. You should check out  Beshak TruMatch - the first-ever Term insurance recommendation engine built by Beshak - to help you find the perfect term insurance plan, with all the right customizations and features that your family needs. 

Beshak TruMatch is free for everyone, and will help you make a term insurance purchase decision in less than 5 minutes! 

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