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Comparing Term Insurance With Traditional Life Insurance

Published On Nov 25, 2021

In today’s world when everything is so dynamic, uncertainty being the only thing that is constant, it is advisable that one must be ready to face this ever-changing reality and at the same time plan for everything that might come their way. To get a grip on this uncertainty it is essential that one plans with insurance for all the scenarios. Having insurance and the right kind of insurance will ensure that you are ready for any unfortunate scenario and you have a plan to get through it. Choosing the right kind of insurance thus becomes an important part of this process. Options available to investor are as follows:

Traditional Insurance Plan

In traditional life insurance, the insurance company plans to return the amount of premiums paid with interest and an additional bonus upon maturity if they survive the duration of policy. One has to pay higher premiums and the sum assured is less compared to other plans. Moreover, they also have a plan where they can cover the insured even after the duration of policy.

Term Insurance Plan

Term insurance plans only provide risk cover and death benefits till the duration of policy. The premium payment is low and the policy lasts for a fixed time and one doesn’t get lifelong cover.

Difference Between Traditional Insurance Plan And A Term Insurance Plan

The key differences between a Traditional Insurance plan and a Term Insurance plan are:

1. Death Benefit 

One of the key differences between a traditional life insurance and a term insurance plan is that the term plans only offer death benefit and that too only during the fixed duration of the policy whereas Traditional Insurance plans offer maturity benefits along with death benefits though the death benefit is low as compared to a term insurance plan.

2. Risk Cover

Traditional insurance plan offers death and maturity benefits Which enables the client to procure savings for future long term financial goals as well as ensure financial safety of their family in case of any unfortunate event whereas in term insurance though the premium is low one allowing one a higher amount in terms of death benefit, client is not offered any maturity benefits and the death benefit is only paid in case of untimely demise during the fixed duration of policy.

3. Flexibility 

A traditional insurance plan tends to be more rigid as when client is not able to pay the premium  they would lose the maturity benefits they so rightly have earned  and even if the client due to some reason has to surrender the policy before its term they would lose all the maturity benefits and risk cover they have earned whereas in a term plan the client has the option to convert their term plan into an endowment plan offering them higher coverage moreover they can just stop paying the premium and the policy would lapse.

4. Tax Benefit 

The premium paid for both kinds of insurance plan qualify for tax deductions as under section 80 C moreover returns on death and maturity benefits both qualify for tax exemption and thus are tax free.

Take Away

Both the insurance plans are good enough plans for future planning however the key differences  for both have been provided for if one needs lifelong cover and a saving option with a more rigid approach they can opt for a traditional plan but if one is an entry level investor they can get death benefits of a term plan which assure higher benefits comparatively for a lower premium payment mode but offering no maturity benefits thus the right policy for a client is dictated by their needs and aim for investing in such policies.

You may also like to read - Does It Make Sense For Senior Citizens To Purchase Term Insurance Policy?

Exploring Different Types Of Life Insurance Policies In India

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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