Life Insurance vs. Term Insurance: Which Is More Affordable?

Let's learn more about them so you can make the right choice for your needs and budget.

What Is Life Insurance?

Life insurance is an assurance between you and an insurance company. You give a small amount of money from time to time, which is called a premium, and the company assures to give a certain amount of money (which is called the sum assured) to your family if you pass away during the policy period.

Life insurance gives peace of mind. It ensures that your family is able to cover huge costs like house mortgages, children's education, or daily living costs in case you do not live long enough to take care of them. There are different types of life insurance policies, but term life insurance and whole life insurance are the most common among them.

What Is Term Life Insurance?

Term insurance is a simple and low-premium type of life insurance. It insures your family for a term of, say 10 years, 20 years, or 30 years. Your family gets the assured amount if you meet with an untimely death during this period. But if you survive the term, the policy matures, and nothing comes back to you.

As a result of such a simple structure, term life insurance is much cheaper than other insurance coverage. You are simply buying protection and not savings or investment. For example, if you are 30 years old and invest in a 30-year term policy, you might pay a couple of hundred dirhams per month for a substantial cover amount. This means that you are receiving strong financial protection at a very low cost.

Life Insurance vs. Term Insurance: What's the Difference?

The majority of people are confused about life insurance vs term insurance. Why? Well, the distinction is pretty simple:

• Whole life or endowment insurance offers you protection as well as savings.

• Term insurance gives you protection, but there is no savings feature.

Let us discuss this with the help of an example. Suppose you buy a life insurance policy. You pay a higher premium, but when you finish the policy duration, you get back some amount of money, either in the form of savings or in the form of a maturity payment. It is a blend of investment and insurance.

If you buy a term insurance plan, you pay a lower premium since you are paying for only the risk coverage. You get nothing in the way of maturity amount later on, but you can enjoy a very high coverage at a low premium.

Briefly:

• Life insurance = Protection + Savings

• Term insurance = Only Protection

Which One Is More Affordable?

Let's now talk about the most important question: which is cheaper? No question, term insurance is much more affordable than old life insurance.

Here's why:

• Term insurance gives pure protection. You pay only for the cover, not for a return on investment.

• Life insurance policies mix protection and savings, so the premiums become a lot higher.

• For the same protection, a life insurance policy can be 5 to 10 times costlier than a term plan.

Let's take a small example:

• A 30-year-old non-smoker buys a term insurance cover of AED 1 million for 30 years.

• The premium each year would be around AED 1,200–1,500.

• The same person buys a life insurance product with savings elements.

• The premium each year would be around AED 8,000–10,000.

You can easily observe the huge difference in cost. Both offer protection, but one is very kind on your pocket. So, if money is your top priority, term insurance wins by a landslide.

Why Term Insurance Is a Good Choice for Most Individuals

For most families, especially young parents or solo breadwinners, term life insurance is an excellent choice. It offers high coverage for a very low price, so your family will be covered even when you don't have much money.

The following are simple reasons why term insurance is a good choice:

• Low Premiums, High Coverage: You can get high coverage at a low price.

• Family Financial Safety: Your loved ones will get enough support to take care of their future.

• Flexible Tenure: You get the freedom to choose how long you want the protection to remain in force for 10, 20, or even 40 years.

• Tax Advantages: Term plans generally offer tax advantages on premium payments.

• Riders (Add-ons): You can pay for additional benefits like accidental cover, critical illness cover, or disability cover. 

Term insurance is one-mindedly focused on protection. That is why it is so simple and affordable for all.

When Life Insurance (Traditional Plan) Is a Better Option

While term life is ideal for the majority, whole life insurance suits some since it provides protection as well as savings.

It may be for you if:

• You desire a long-term savings scheme with assured returns.

• You require a lump sum at retirement or after a set period of time.

• You are ready to pay higher premiums for investment benefits.

Whole or endowment policies act as a means of forced saving. You pay monthly, and at the end of the policy term, you get your money back every now and then with interest or a bonus. Thus, if you are not just looking for protection but want to build a financial fund over time, standard life insurance can be a good option.

Things to Think Over Before Deciding

If you are in a dilemma whether to buy a term insurance or a life insurance policy, then think first about the needs of your loved ones, your budget, and your goals. Here are some questions that you may ponder over:

• How much will it cost me to provide for my family?

• Am I able to pay a higher premium to save benefits?

• Do I already have other investment assets, such as savings plans or mutual funds?

• How long do I want the policy to cover me?

In the case that cost is the main factor and you want to take care of your family at a reasonable expense, then choose term insurance. In case you need the savings feature and are willing to pay a higher price, then the right decision for you is life insurance.

The Intelligent Way to Decide

Always compare the two options side by side in detail. Doing it online or taking the assistance of an insurance advisor is entirely your choice. Compare:

• Sum insured

• Premium amount

• Advantages

• Claim formalities

• Duration of the policy

Most individuals in their 20s, 30s, or even 40s primarily opt for term insurance because it offers them strong coverage without hefty financial implications. Later, when they get more money, they can simply add an investment-oriented life insurance policy for their long-term investment.

Conclusion

Life insurance vs. term insurance is not about the benefits; it's about what you need now.

If you want the lowest expense and most basic protection plan, term insurance is the hands-down option. It covers your loved ones, gives you peace of mind, and fits nicely into your budget. If you want protection as well as savings and are not hesitant to pay a bit more, then a traditional life insurance policy will suit you better.

Either way, it's better to have some sort of life cover than nothing at all. It's a minor step that gives great protection to the future of your loved ones. Take a few minutes today, go through your options, and make your decision. Your decision today can make all the difference to your loved ones tomorrow.