Term Insurance and Life Insurance

Table of Content

1. What is Term Insurance Plan?

2. How to calculate my term insurance premium?

3. What is Life Insurance Plan?

4. What are the Different Types of Life Insurance Plans?

5. What are the Different Types of Term Insurance Plans?

6. Term Insurance and Life Insurance: Overview

7. Our Top Term Insurance Plans

8. Summary

9. FAQs on Term Insurance and Life Insurance

What is Term Insurance Plan?

Term insurance is one of the purest forms of life insurance, offering coverage for a specific period at an affordable premium. Under this policy, the death benefit is paid only if the policyholder passes away during the policy term.

Standard term insurance plans do not provide a maturity benefit, making them a cost-effective option focused solely on protection. Due to its simplicity and affordability, term insurance is highly suitable for ensuring income replacement and financial security for your family in your absence. 

Moreover, a 2025 report highlights a 58% surge in term insurance purchases among self-employed individuals in India, significantly outpacing purchases by salaried individuals. This growth is largely driven by Millennials and Gen Z, who increasingly view term insurance as a crucial financial protection tool.

What is Life Insurance Plan?

A life insurance plan is a contract between a policyholder and insurer that provides lifelong financial coverage. When a premium is paid, part of it serves as a death benefit, and the other part is directed to a cash-value account where the money grows tax-deferred.^#

Deduction for premiums paid is generally available under Section 123 read with Schedule XV of the Income Tax Act, 2025 (Section 80C of the Income Tax Act, 1961), up to an overall limit of ₹1.5 lakh in a financial year.

The taxability of proceeds is governed by Section 11 read with Schedule II of the Income Tax Act, 2025 (Section 10(10D) of the Income Tax Act, 1961). The exemption applies only if the premium payable in any year does not exceed 10% of the sum assured, and the total annual aggregate premium does not exceed ₹2.5 lakh for ULIP policies and ₹5 lakh for non-ULIP policies. However, death benefits remain fully tax-exempt.

The death benefit is paid to the nominee or family members in case of the policyholder’s demise, while the policyholder can access the cash value account as part of the maturity benefit.

In other words, in addition to offering a death benefit upon the policyholder's death, this type of policy provides a maturity benefit if the policyholder survives the policy term. It is ideal for long-term financial planning and for wealth creation. 

#Note: The provisions below are primarily as per the Income Tax Act, 2025 (effective from 01.04.2026). Corresponding sections of the Income Tax Act, 1961, are mentioned in brackets for ease of reference.  

What are the Different Types of Life Insurance Plans?

Life insurance is a versatile financial tool that helps policyholders meet diverse objectives. Whether you prioritise pure protection, wealth creation, or retirement security, you will find a tailored plan that suits your needs. 

The plans offer a robust safety net for your family and serve as a disciplined investment net for life milestones, such as a child’s education. Furthermore, these plans efficiently blend life insurance coverage with savings.

Below, we explore different categories of life insurance to help you align your coverage with your long-term financial vision.

Whole Life Insurance Plan

Whole life insurance provides the unique advantage of lifetime coverage. It typically spans up to 99 or 100 years. In contrast to other life insurance policy types, a whole life insurance plan ensures long-term financial protection for your loved ones in your absence. 

As an ideal instrument for legacy planning, a whole life insurance policy allows you to leave behind a substantial tax-free corpus for generations to come. 

Endowment Assurance Plan

An Endowment Assurance plan combines the benefits of life protection and a disciplined savings component. When the policyholder outlives the policy term, they receive a guaranteed maturity benefit, including the accumulated bonuses. 

This is why it is a reliable choice for individuals who are looking for a risk-free way to build a corpus. Moreover, this plan ensures their family remains financially secure even when the breadwinner of the family is not around.

Money-Back Plan

This type of life insurance policy is designed for those looking for periodic liquidity throughout the policy tenure. Unlike standard life insurance, a money-back plan allows policyholders to receive a percentage of the total sum assured amount at regular intervals. 

With the help of such survival benefits, policyholders meet short-term financial goals without exhausting their policy. If the policyholder survives the full policy term, the remaining balance is paid as a maturity benefit.

Child Plan

A Child Plan is a form of life insurance policy dedicated to securing your child's future milestones, including higher education or marriage. Besides building a life cover, parents can generate funds that can be used to reach their children’s life goals. 

In the event of the parents' untimely demise, child plans offer benefits such as a premium waiver and partial withdrawals. So, their children’s dreams remain financially protected. 

Unit-Linked Insurance Plan

Unit-Linked Insurance Plans (ULIPs) are a powerful combination of life insurance and market-linked investments. When you pay the premium, a portion of it goes toward life cover. Based on your risk appetite, the remaining amount gets invested in different funds, such as equity, debt, or balanced funds. 

That way, policyholders generate long-term wealth that serves as a hedge against inflation through market returns.

Pension Plan

A pension plan prioritises financial independence during your post-retirement years. During your working years, you consistently contribute to this plan to build a retirement corpus. This corpus converts into a steady stream of regular income or annuities. 

If you are looking to maintain your lifestyle and ensure a dignified retirement that covers necessary healthcare costs when your income ceases, these plans are ideal.   

What are the Different Types of Term Insurance Plans?

The following term insurance plans are available:

• Level Term Insurance Plan

This is a plan where the premium amount remains the same for the policy duration.

• Increasing Term Insurance Plan

The coverage in this plan keeps enhancing as you age.

• Decreasing Term Insurance Plan

In this plan, the coverage keeps decreasing with age.

• Convertible Term Insurance Plan

Under this plan, you are given the option to change the insurance plan at any stage during the duration.

• Term Insurance Plans With Riders

The insurer provides add-on benefits or riders that enhance the coverage of the basic term plan to align with your needs.

Term Insurance and Life Insurance: Overview

Here is an overview of term insurance and life insurance for better clarity about

An elaborate account of the points covered regarding term insurance and life insurance in the table is given below for a better understanding:

• Cover Amount

In a term insurance plan, such as a 1 crore term insurance policy, the beneficiary receives a death benefit if the policyholder dies during the policy term. In a life insurance plan, the policyholder gets a cash benefit if he/she survives the policy term. In the case of the untimely death of the policyholder during the policy term, his/her beneficiary(ies) receive the death benefit.

• Premium Amount

Premiums have to be paid for both term insurance and life insurance. The premium on a term insurance is comparatively more affordable than that on a life insurance because term plans are for a specific period whereas life insurance plans are for a whole life. Also, if you purchase a term insurance plan early in life the premium is likely to be much lower.

Term insurance plans are perfectly suitable for individuals who cannot afford higher premiums but intend to provide financial security for their families.

• Maturity Benefits

The main difference between life insurance plans is the maturity benefit. Term insurance gives the advantage of life cover, whereas life insurance has both the life cover as well as the maturity benefit if you live beyond the policy term.

However, though term plans do not have maturity benefits, they do offer other benefits. Some term plans offer a 100% premium refund option wherein the premiums paid for the tenure are refunded at the end of the policy term. Check for the various term insurance and life insurance plans available at HDFC Life and choose the best.

• Risk covered Vs. Savings

Term insurance plans provide only death benefits to the beneficiaries if the policyholder dies during the policy term. Life insurance plans provide both death benefits and maturity benefits. Term insurance is suitable for those who need only risk coverage whereas life insurance is for those who intend to create a corpus for future along with risk coverage.

• Flexibility

You are given the option to surrender the policy in both term insurance and life insurance. In a term insurance plan, if the insured stops paying the premium, the policy lapses and the benefits cease. However, in life insurance plans, the insured gets the maturity benefit only if he/she survives the policy term. A provision to surrender the policy during the policy term is given wherein the insured is not given the entire savings portion. Only the premiums paid will be refunded after specific deductions.

• Tenure

Term insurance and life insurance plans have a specific tenure. The coverage in term insurance plans is for a specific duration which ranges from 5 years to 30 years. In whole life insurance plans the duration is flexible and you can get coverage up to 100 years.

• Additional Benefits and Bonuses

No loyalty, terminal, revisionary, or accrued bonuses are available in term insurance plans. Life insurance plans on the other hand provide all the bonuses. However, life-stage benefits and riders are available in both insurance plans subject to the terms and conditions of the plan you purchase.

• Tax Benefit

The premiums paid for both term insurance and life insurance plans are eligible for deductions under Section 80C of the Income Tax Act 1961. Term insurance tax benefits also include exemptions under Section 10(10D), where the death benefit is tax-free, while both death and maturity benefits in life insurance qualify for the same exemption.

Furthermore, a significant benefit has been introduced for policyholders. The GST on life insurance premiums has been lowered from the existing 18% to 0%, a new rate that became effective on September 22, 2025. Similarly, the new GST on term insurance has reduced GST rates on term insurance premiums, making term insurance more cost-effective while retaining its tax-saving advantages.

• Surrender and Paid up

In term insurance plans, if the insured stops paying the premium, the policy lapses and the benefits are terminated. In life insurance plans, if the insured discontinues the premium payment after a few years, it attains a paid-up value. Subsequently, if the insured surrenders the policy, a surrender value is paid.

Summary

Term insurance and life insurance plans have their relevance and benefits. They essentially provide financial security to your family in case of any eventuality. The fact that your family will not go through financial hardships in your absence gives comfort and peace of mind. But then, understanding the term insurance and life insurance comparison is crucial to deciding which suits you better.

The key difference is that a term insurance plan provides life cover for a specific period whereas a whole life insurance plan provides coverage for your entire life. Also, unlike term insurance plan that provides only life cover, life insurance has both life cover as well as the savings component which may be beneficial if you need the dual benefit of financial security for your family as well as creating a corpus for your financial future. You may also consider insurance for personal accident to supplement your life or term insurance plan, offering added protection against accidental injuries or death.

FAQs on Term Insurance and Life Insurance

Q. As a housewife, why do I need a life insurance plan?

A housewife's contributions, from managing the home to caring for children, have significant financial value. This plan offers an affordable way to secure your spouse and children, ensuring that if something were to happen to you, your family has financial support to manage these responsibilities and maintain their lifestyle. 

Q. What happens if our family faces a financial crisis and we can't pay the premium?

HDFC Life Click 2 Protect Supreme includes a Premium Break Benefit that allows you to pause your premium payments for up to 12 months. This is a vital safety net in case of a household financial strain, giving you the flexibility to manage your budget without the fear of your policy lapsing. 

Q. What is the difference between life insurance and term insurance?

The main difference between life and term insurance is; that whole life insurance plans provide coverage for the whole life whereas term insurance provides coverage for a specific period.

Q. Which is better term insurance or life insurance?

The choice of investing in term insurance or life insurance depends on individual needs. If your objective is financial security for your family at lower premiums, then term insurance is ideal for you. If you can afford higher premiums and require both the life cover as well as savings component, life insurance is suitable for you.

Q. What is the best age to buy term insurance or life insurance?

It is recommended to buy term insurance plans or life insurance plans early in life to get the benefit of affordable premiums. It is best to start a plan between 20 to 25 years of age.

Q. What happens if I stop paying premiums for life insurance and term insurance?

If you stop paying premiums for term insurance the policy lapses and the benefits cease to exist. In life insurance, if you stop paying premiums after a few years the plan attains a paid-up value. If you surrender the policy you get a surrender value.

Q. Can I have both term insurance and life insurance?

Yes. Insurance companies permit the purchase of multiple insurance plans depending on your requirements. You can buy a term insurance as well as a life insurance policy.

Q: Which is life insurance plan is better?

The answer lies in your objective of buying the insurance. Term insurance is one of the types of life insurances. Other types of life insurance plans include ULIPs, money back policies, endowment policies, retirement plans, etc. Whether a life insurance plan or a term insurance would be better for you would depend on factors such as your financial goals, age, existing liabilities and assets, income, and the reason behind buying the insurance.

Q: Which is better, term or whole life insurance?

Term insurance plans are primarily aimed to provide assured life cover to your nominees/beneficiaries in case of your death during policy tenure. In case you unfortunately die after the policy term has lapsed, your nominees may not get the cover amount. But in case of whole life insurance, the policy offers coverage for your entire lifespan, such as up to 99 or 100 years.

Term or whole life insurance, which one is better for you, would depend on how long you want the coverage for. If you want to be specifically covered for particular policy tenure, such as 10 years or 20 years, term insurance can be chosen. But if you wish to get covered for your entire life, whole life insurance can be chosen. You can contact one of India's leading insurers, HDFC Life, to get more clarity about which life insurance would be suitable for you. However, keep in mind that some insurers nowadays offer term insurance till the age of 99 as well.

Q: What are the 3 benefits of term insurance?

The 3 big term insurance benefits are high sum assured at low and affordable premiums, the option of add-on riders such as critical illness cover, and income tax benefits. Other key benefits of term life insurance include multiple death benefit payouts and the return of premium option.

Q: Is it safe to buy term insurance?

Yes. It is safe to buy term insurance from reputed and leading insurers in India, such as HDFC Life. Do not click on any suspicious or random link or website that claims to provide insurance, as they can be scams. Make sure you check the reputation, history and claim settlement ratio of an insurer when buying term life insurance.

Q: Who is not eligible for term life insurance?

If you meet the eligibility criterion of an insurance company, such as the age, citizenship, medical examination, identity proofs, etc, your term life insurance application will likely be accepted. However, if you fail to meet any criteria, such as your age does not fall into the usual bracket of 18-65 years, or you do not clear your medical tests, you may not be eligible for term insurance.

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