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Life Insurance vs Term Insurance: Which is Better?

Submitted by admin on July 18th, 2025

Insurance forms an important aspect of financial planning, especially during an attempt to ensure fiscal security of the family. Nonetheless, it is quite common that the majority of the Indian population is mixed up in term insurance and traditional policies of life insurance. They are also structurally different, different on costs, and differ in terms of returns, although the main agenda between them is provision of financial security. The differences between the two need to be understood first and then determine which one fits your need better.

Term insurance:

This is a pure protection policy. It provides a large sum assured, at a low premium rate. This plan is paid only in a situation during policy term in which the policyholder dies. No maturity benefit in the case of survival of the policy holder in the term. The fact that it is inexpensive is the main benefit of term insurance. As an example, a healthy 30 years old will be able to purchase a ₹1 crore term insurance policy at an amount as little as ₹10,000 to 15000 per year. This has made it very convenient and worthwhile to people who would want to offer financial security to their close people in the event of unexpected demise.

Life Insurance

Conversely, conventional life insurance plans like endowment plans, a whole life policy or a money-back policy both offer insurance and savings. In these plans, there is death benefit and maturity benefit. In case the policy holder outlives the term, he is paid with the sum assured with bonuses included. These policies are guaranteed though the rate of return is not very high and it does not exceed 4 to 6 percent per year. Also, these plans are costly. Same sum assured premiums may be 8 to 10 times as much as a term insurance scheme which implies that majority of the population cannot have much coverage in terms of life insurance schemes.

When comparing the two, term insurance is clearly the better choice for pure risk protection. It allows policyholders to get a significantly higher cover for a lower cost. This is important in today’s world where liabilities such as loans, children’s education, and medical expenses can put financial strain on a family in case of the breadwinner’s death. Since term plans are affordable, individuals can ensure their family receives sufficient financial support without overburdening their monthly budget.

Traditional life insurance, on the other hand, appeals to those looking for a low-risk savings option with a basic insurance component. While it does provide a maturity benefit, the returns are often lower than what one could earn through other financial instruments like mutual funds or Public Provident Fund (PPF). Also, the coverage offered under these plans is usually insufficient to meet the needs of most families.

Financial advisors in India widely recommend keeping insurance and investment separate. One should ideally buy a term insurance policy to protect against life’s uncertainties and invest the savings from lower premiums into higher-yielding avenues like SIPs, ELSS, or PPF for wealth creation.

Finally

In conclusion, while both term insurance and life insurance have their place, term insurance is the smarter and more economical option if your primary goal is protection. Traditional life insurance may suit those seeking disciplined savings but often falls short in terms of coverage and returns. Hence, for most Indians, term insurance is the better choice.