Term Insurance vs Life Insurance : Which one should you buy in 2023?

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 2023 so checkout this guide.

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.

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.

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!

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?

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.