Term Insurance vs Life Insurance : Which one should you buy in 2022?

Planning to buy a Life Insurance but confused whether to go for a Term Insurance or a Standard one? Well, here’s your guide which helps you choose the best Life Insurance plan ideal for you and family.

by FighterMan Updated: 11 Apr, 2022, 11:51 IST
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Many of us have always been confused about whether to go for term insurance or regular life insurance. Which one is beneficial in the longer run? Which one will give better returns? Why are these both life insurance schemes important? Many such questions arise when we want to decide on the best life insurance scheme. Well, this article will do a comparison between Term Insurance and Life Insurance on the most important points of 2022 so checkout this guide.

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What is a Term Life Insurance Plan?

Term life insurance guarantees a specified sum in the event of Death or Permanent Disability during the policy period. The insured will not receive any Return or Survival Benefit if he survives the policy period.

In simple terms, if there is no death (Insured even) in the policy period, you will not receive any amount from the insurance company. Still, if you die throughout the policy period, your survivors will get the whole Insurance Amount. Term insurance has a comparatively lesser premium for the higher sum insured. A Term plan for Rs. 50 lakh will be cheaper than a regular life insurance plan of the same amount.

What is a standard Life Insurance Policy?

A standard life insurance policy provides you life protection and gives a return if you survive the policy period. For example, suppose you buy a regular life insurance plan of the sum insured Rs. 50 lakh with 20 years policy period and maturity amount Rs. 5 lakh plus bonus. In this policy, if you die, your survivors (wife, children, etc.) will receive Rs. 50 lakh, and if you survive the 20 years policy period, you will receive Rs. 5 lakh plus bonus as maturity amount.

Term Insurance vs Life insurance: Which one should you buy?

The choice between Term Insurance and Regular Life insurance depends upon your financial needs and plans. If you believe your family financially depends on you and want them to receive a considerable amount like 1 cr or 2 cr to lead a respectable life in your absence, you must go for term insurance. But, if you already have another source of income like rent or business profit that can take care of your family in your absence. You also want some investment income from the insurance policy. In that case, you may go for a regular life insurance plan.

Related Read: Life Insurance Buying Guide : 10 Reasons Why You Must Buy a Life Insurance Now!

Why does regular insurance give you a maturity amount, but your term insurance pays no maturity amount?

In regular insurance, they used some portion of your insurance premium for investing in the market under the directions of IRDA. This investment income comes back to you as your policy returns at the time of maturity.

Some portion of the premium is used to give your life insurance cover. The remaining amount is invested in government securities, bonds, secured debts, the stock market, and mutual funds. IRDA regulates this ratio of investment.

Also Read: Insurance Buying Guide : Details You Need to Know Before Applying for Insurance?

Why is a Term insurance premium cheaper than Regular Life Insurance premium?

Insurance companies divide every regular insurance premium into three components. 1. Morality premium; 2. Investment premium; 3. Expenses

  1. Mortality Premium: Mortality premium is that part of your original premium employed to produce life insurance cover. It varies from 50% to 70% depending upon your policy.
  2. Investment Premium: This part is generally 30% to 10% and used for investment in the market. Life Insurance Company gives the return generated by this investment to you as your survival benefits.
  3. Expenses: There are numerous expenses to run an insurance company, such as salaries, fixed costs, office expenses, and agent commissions. It varies from 30% to 5% of your premium.

There is no portion of Investment premium in Term insurance, and they utilize all your premium for providing life insurance protection after deducting expenses. That is why the premium of Term insurance is cheaper than regular life insurance.

If you are confused between a regular life insurance plan and a term insurance plan, the best advice is to analyze your requirements and needs. If you believe you have sufficient investment and need pure life insurance of a higher amount with less premium, the Term plan is best for you. Suppose you want to use your insurance as a method of saving and want your insurance company to invest some portion of the premium on your behalf with life protection at the same time. In that case, Regular life insurance will fulfill your needs.

You are on which side, Term Insurance or Life Insurance? Do share your views on this in the comments below.

14 Comments  |  
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Deal Subedar Deal Subedar

Thanks.. Planning to take one..

Thanks.. Planning to take one..Already have 2 health policy with total cover of 30L.

Thanks.. Planning to take one..Already have 2 health policy with total cover of 30L.

Deal Newbie Deal Newbie

Term insurance for sure.

Deal Cadet Deal Cadet

Term insurance is the best. For pure term plan GST is 18%. In refundable plan, your premium amount (-GST) will be returned if you are alive after term. That amount is not important after 35 years but if you choose refundable plan, GST will be 4.5% (1st year), 2.25% (after that). So in the end, premium will be lower for refundable plan than pure term plan. So that gives double benefit.

I recently took Max Life refundable term plan. Also if you have previous policy with them, they give 5% discount on 1st payment.

Deal Subedar Deal Subedar
testy_monkey wrote:

Term insurance is the best. For pure term plan GST is 18%. In refundable plan, your premium amount (-GST) will be returned if you are alive after term. That amount is not important after 35 years but if you choose refundable plan, GST will be 4.5% (1st year), 2.25% (after that). So in the end, premium will be lower for refundable plan than pure term plan. So that gives double benefit.

I recently took Max Life refundable term plan. Also if you have previous policy with them, they give 5% discount on 1st payment.

Because of lower GST ??

can you explain with some data 

Deal Cadet Deal Cadet
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googlecardboard wrote:

Because of lower GST ??

can you explain with some data 

Here’s an example.

For pure term plan, if the premium is 90000/year for 5 years. Premium paid will be 90000 + 18% GST = 106200 every year. So total will be: 531000. Just pay that & forget it if you are alive after term period is over.


For refundable plan, if the premium is 105000/year for 5 years. Total premium paid will be:

for 1st year: 105000 + 4.5% GST = 109725

from 2nd year to 5th year: 105000 + 2.25% GST = 107362

so total would be 109725 + (107362 × 4) = 539175.

This is only slightly costlier than pure term plan and you’ll get 525000 back if you’re alive at term end.

Max life also gave me 5% (around 5500 rupees) discount on 1st premium.

Deal Subedar Deal Subedar
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testy_monkey wrote:

Here’s an example.

For pure term plan, if the premium is 90000/year for 5 years. Premium paid will be 90000 + 18% GST = 106200 every year. So total will be: 531000. Just pay that & forget it if you are alive after term period is over.


For refundable plan, if the premium is 105000/year for 5 years. Total premium paid will be:

for 1st year: 105000 + 4.5% GST = 109725

from 2nd year to 5th year: 105000 + 2.25% GST = 107362

so total would be 109725 + (107362 × 4) = 539175.

This is only slightly costlier than pure term plan and you’ll get 525000 back if you’re alive at term end.

Max life also gave me 5% (around 5500 rupees) discount on 1st premium.

https://www.jagoinvestor.com/2021/09/misselling...

Deal Cadet Deal Cadet

Just go for plain vanilla term plan plus optional accident rider or terminal illness riders. All these money back plans and endowment plans are useless and will not give more than 4-5% return

Deal Cadet Deal Cadet
Rdb1947 wrote:

Just go for plain vanilla term plan plus optional accident rider or terminal illness riders. All these money back plans and endowment plans are useless and will not give more than 4-5% return

The latter will not provide any protection to your family in case something happens to you either

Deal Newbie Deal Newbie
Deal Newbie Deal Newbie

Always Purchase Pure Term Insurance premium will be very low.. rest amount invest in any good MF SIP.. if you calculate return @ 7 % then also u will get much more amount than Return of Premium Term insurance .. as term insurance is for at least for age upto 70 or 75  and if you choose premium paying term regular till policy premium will be around 800 to 950 ..in pure term insurance and 1700-1800 in return of premium term insurance. if difference amount i.e around 900 invest in MF till policy term period and assume minimum return then you received more than 34 lakh and if you choose return of premium then you will received only 5 lakh..

calculate and then take policy..

for insurance product you can contact with me .. i am insurance advisor from aditya birla insurance.

thanks

Spearhead Spearhead

i hve taken icici pru term insurance for 31 years.

coverage – 2 Cr
critical illness ( rider ) -25lakh

premium – 27000 including gst and rider plan

Deal Cadet Deal Cadet
jashangunike256 wrote:

i hve taken icici pru term insurance for 31 years.

coverage – 2 Cr
critical illness ( rider ) -25lakh

premium – 27000 including gst and rider plan

Full details please.. age and premium payment term

Spearhead Spearhead
Expand
csaram1067 wrote:

Full details please.. age and premium payment term

Age – 29
Plan years – 31 years
premium-27k including rider plan

Like Magnet Like Magnet

can plain vanilla term insurance with accidental rider from HDFC click2 proetect 3d plus be claimed under sec 80D for tax benefits ? or this has to be claimed under sec 80C?

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