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Difference Between Term Insurance and Life Insurance

TeamAckoMay 23, 2024

Choosing the right insurance plan is an essential financial step that can protect your family in the event of your demise. Two of the most common insurance plans are term and permanent life insurance. While both provide death benefits, there are some critical differences that you need to understand before purchasing a policy. This blog will give a detailed comparison of term and permanent life insurance life insurance to help you make an informed decision.

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What is Term Insurance?

Term insurance, also known as term life insurance, provides life coverage for a specified term - usually between 1 and 30 years. It pays the death benefit if the policyholder dies during the coverage term.

Term Insurance is best for temporary life insurance needs or supplementing existing life insurance. It is ideal for mortgage protection, family income replacement, etc.

What is Permanent Life Insurance?

Permanent life insurance provides coverage that never expires, unlike term plans. These plans offer lifelong protection, with the policy paying out the death benefit whenever the policyholder dies, whether during the early or later years of the policy. Permanent life insurance is ideal for permanent family protection, wealth creation through cash value, and legacy planning.

Detailed Comparison Between Term Insurance and Permanent Life Insurance


Term Insurance

Permanent Life Insurance


Lower premium because it only provides temporary protection

Higher premium because coverage is lifelong

Duration of Coverage

Coverage is for the policy term - usually 1 to 30 years

Protection lasts for the entire lifetime

Cash Value Accumulation

No cash value builds up as the total premium goes towards only providing death coverage

Part of the premium goes towards cash value - the loan can be taken against accumulated cash value later

Claim Payment

Only the sum assured is paid on death

Sum assured + vested bonuses and cash value (if any) is paid on death


Riders like accidental death, critical illness, and more can be added at minimal cost

Waiver of premium, accelerated death benefit, accidental death riders, and more are available

Surrender Value

There is no surrender value. Nothing will be paid if the policy is discontinued early

After 2-3 years of premium payments, the policy gains surrender value, ensuring a payout if surrendered early


No bonuses or guaranteed additions. Only the sum assured is paid

Bonuses, cash value, etc, lead to increased death coverage over time


Few restrictions related to age or income

More eligibility restrictions on maximum coverage amount, income, health history, etc

As seen in the comparison above, term insurance provides affordable protection for temporary needs, while life insurance ensures lifelong coverage and wealth accumulation. Term insurance may be more suitable if your priority is only protection, while life insurance plans work better for permanent family protection and financial planning.

When Does Permanent Life Insurance Work Better Than Term Insurance?

Here are some scenarios when permanent life insurance may prove to be a better choice than term insurance:

  1. Permanent family protection: Life insurance provides lifelong coverage to secure your family's future, compared to term insurance, which covers only a limited period. 

  2. Building cash value: Part of the premiums in life insurance go towards building a cash value that grows over time and can be borrowed against in times of need. Term plans do not offer this added advantage.

  3. Wealth creation: The cash value accumulated over the years in a life insurance plan can supplement retirement savings and leave a legacy. 

  4. Better suited for long-term goals: Considering lifelong coverage, life insurance is better than term insurance for primary long-term goals like children's education and retirement planning.

  5. Comprehensive financial planning: Life insurance plans that offer maturity benefits and coverage allow policyholders to enjoy the dual benefits of protection and stable returns.

When Does Term Insurance Work Better Than Permanent Life Insurance?

Here are some scenarios when term life insurance may prove to be a better choice than permanent life insurance:

  1. Need Coverage for a Specific Period: Suppose you need insurance only for a specific period to cover a home loan or children's education. Term insurance protects for a set period, allowing you to match the length of coverage to your needs.

  2. Tight Budget: Term insurance premiums are substantially lower than permanent life insurance premiums, making it more affordable.

  3. For Young: Term insurance is much cheaper than permanent insurance, especially if you get it at a young age. It allows you to get high coverage even with low premiums.

  4. To Maximise Coverage: Term insurance provides a much higher death benefit for the same premium as permanent life insurance, maximising the protection you can provide.

ACKO Life Flexi Term Plan

The ACKO Life Flexi Term Plan offers unmatched flexibility. You can customise your coverage according to your evolving life stage needs, increase or decrease your Sum Assuredand policy tenure to match your financial commitments. This innovative term plan ensures your family's financial safety while not burdening your wallet. 


Term insurance provides temporary protection for a specified duration at a low cost. In contrast, permanent life insurance ensures lifelong family protection and wealth creation through cash value and a death benefit. So, select the right plan according to your requirements and protect your loved ones today.

Frequently Asked Questions

Here are some frequently asked questions related to difference between term insurance and life insurance.


What is the duration of coverage provided by life insurance?

Life insurance covers your entire lifetime as long as the premiums are paid.

Is it good to buy term insurance?

Yes, having a term plan is vital to protect your loved ones’ financial stability in case you’re no longer there to provide for them. 

Who is eligible for term insurance?

Individuals aged between 18 and 65 years are eligible to purchase a term insurance plan.

Does a term insurance plan offer maturity benefits?

No. It does not provide maturity benefits. However, term insurance with return of premium (ROP) plans refunds the premiums paid if the policyholder survives the policy's term.

Is a term plan tax-free?

The death benefit of a term plan is entirely tax-free.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.


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