Permanent Life Insurance vs Term life insurance - What to Choose?

If you plan to buy a life insurance policy , you may have heard of different types of policies like term life insurance and permanent life insurance . While both the plans provide benefits to the family in the event of the policyholder's death, these plans vary in many ways.

As the name suggests, a term life insurance policy provides protection for a fixed term only. If you pass away before the policy term, the insurance company will pay the death benefit to the nominee (equal to the sum assured). But, if you survive the policy term, you do not get any payout.The term insurance also commonly referred to as a pure life insurance policy is one of the most popular insurance plans. It provides high coverage at an affordable premium. When you buy a term policy, you have the flexibility to choose the sum assured and the tenure to suit your specific needs.

Permanent life insurance policies provide protection throughout the policyholder’s life. There are different types of permanent plans, like whole life insurance and the endowment policy. Depending on the type of permanent life insurance plan you purchase, you can get several benefits including, survival benefit (if you outlive the policy tenure), maturity benefits (which is paid as per the policy documents), loan facility, etc. Also, you get the flexibility to choose the sum assured and the policy duration.

Term :

Term plans offer protection for a fixed duration, while the permanent insurance has flexible tenure, and it usually covers until the policyholder reaches 100 years.

Premium :

The premium you pay for a permanent policy is invested in other investment instruments. If the insurers make a profit, part of it is paid to you as a bonus or return on investment. With a term policy, you do not get any returns.

Coverage :

While the permanent life insurance acts as both savings-cum-protection plan, a term insurance policy is a pure protection plan.

Maturity benefit –

Maturity benefit is usually payable in most of the life insurance plans while it is excluded from the term plans.

Flexibility –

One of the biggest benefits offered by life insurance plans is that they are very flexible in nature whilst term insurance plans lack this quality.

A term insurance plan and life insurance plan has just one similarity in them and that is tax benefits offered on them. For both the plans, the premiums paid enjoy the tax deduction under section 80C of up to ₹1.5 Lakhs. Adding to this, the death benefit received is also tax-free under section 10(10D) .

If you are young and unmarried, a term plan would be an ideal choice. These plans have high protection value and have the most affordable premium amongst all types of life insurance policies.If you are old and have dependent children and a spouse, a permanent life insurance policy would be suitable. It not only offers you the death benefit but also allows you to save for the long-term goals and get valuable returns.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.