A Term Life Insurance Policy also known simply as a ‘Term Policy’ is a pure insurance policy with no investment component.
The entire premium collected under a term life insurance policy goes towards securing the life of the policyholder. This is known as risk premium.
Under a term insurance policy, the sum assured is payable only on event of death.
A term insurance policy is distinct from an endowment policy or a unit-linked policy in the fact that the endowment/unit-linked policy has both an insurance component as well as an investment component.
Under an endowment or a unit-linked policy, the premium collected has two components. A part of the premium goes towards securing the life of the policyholder (the risk premium), while the remaining amount is invested in approved securities. The invested amount is paid upon maturity of the policy.
As stated earlier, under a term policy there is no investment component and the sum assured is payable only in the event of death.