Update and upgrade, the two terms are very similar and that sometimes causes confusion. Time for clarification.
What is an upgrade?
Anyone who books a flight is sometimes asked whether he/she wants to upgrade the booking. This means, for example, more legroom or more comfortable seats. Of course there is a price tag. This is no different with software.
What to keep in mind when considering an upgrade: it always refers to a newer version of a product. Manufacturers make this clear by using a higher version number. For example, Office 2016 is a different product than Office 2013. And Windows 10 is a different product than Windows 8.1. With paid packages, you have to pay for an upgrade. With some exceptions, as you probably know, Microsoft has made the upgrade to Windows 10 free for Windows 8.1 and Windows 7 users for the first year.
What is an update?
No program or operating system is perfect. That is why it is often necessary to make interim adjustments. Sometimes the adjustments are even essential, for example because the security of the computer is at stake. In that case, manufacturers make additions to the existing programs. Those additions will be distributed in an update. So the system is literally being updated. But the version of the program does not change, the basis remains the same. If your Windows 10 is updated, it will just remain Windows 10.
What to keep in mind when considering update: it always involves updating an existing program. But Word 2016 remains Word 2016. Updates are always free.