Traditional Life Insurance Or Term Insurance - Which Is Better?
Updated On Aug 20, 2021
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Emergencies can throw families into disarray and put them under mental, physical, and financial strain. This is why life insurance is such a crucial investment, especially if you have a family to look after. Life insurance can help you manage your risks in terms of hospitalisation costs and other unexpected events. Term life insurance plans and traditional life insurance plans are the most prevalent types of life insurance policies. Let us see which one will be a better option for you.
What is a Traditional Life Insurance Plan?
The insurance provider offers maturity and death benefits under a traditional life insurance plan. These plans can be categorised into endowment plans, whole life insurance plans, unit-linked insurance plans, retirement plans, money-back plans and child insurance plans. The premium paid by the policyholder is used for providing life cover, savings and investment opportunities according to the chosen plan.
What is a Term Insurance Plan?
Term life insurance provides death benefits if the life assured passes away during the policy's term. However, if the life assured survives the policy term, he/she is not paid with maturity benefits. The plan can be categorised into level term plans, increasing term plan, decreasing term plan, convertible term plans and return of premium plans. The plans do not offer any savings and investment opportunities.
Traditional Life Insurance Vs Term Insurance
The following are the factors that can be considered while deciding between traditional and term life insurance policies.
- Flexibility - Term plans are highly flexible because they have no paid-up or surrender value and no maturity advantages. Term insurance can also be readily renewed and changed into any endowment plan by just paying the required premium. On the other hand, life insurance policies are set in stone. A paid-up value and a surrender value are stated in traditional life insurance policies. You can, however, get policy loans through these plans.
- Coverage - Term insurance plans only cover you in the event of premature death. In most term plans, the benefit is only paid if the life assured passes away during the plan's term. In contrast, maturity benefits are available in other forms of life insurance plans. These plans not only cover the danger of premature death, but they also offer a reward if the life assured lives till the end of the policy term.
- Premium - Term insurance only protects you against the chance of dying too soon. That is why their premiums are so low and affordable. You can easily purchase a high sum assured amount at a reasonable price. Traditional life insurance plans with a maturity benefit provide a larger range of coverage. As a result, their premiums are greater than term policies.
- Policy Term - Long-term coverage is available with term plans, which can last up to 30 or 35 years. In contrast, other types of life insurance plans are available for durations of 5 to 30 years.
- Additional Benefits - Under term plans, there are no bonuses or other forms of additions. The basic sum assured is paid in the event of death. However, bonus additions, loyalty additions, guaranteed additions are available in and other forms of life insurance policies, such as endowment, money return, or kid plans. These enhancements improve the policy's benefits.
Term insurance and life insurance policies are both useful. You should be aware of the differences between term and life insurance before selecting the most appropriate plan for your needs. Term insurance can become an absolute necessity if you are the sole breadwinner of your family. However, in the case of other forms of life insurance plans, you should consider your financial goals before selecting a plan that meets them.
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.