Term and non-term life insurance plans: How to choose between them?
Buying a life insurance plan is simple enough. But deciding which plan to purchase - that's going to take some effort.
After all, you're going to want the plan that's best for your family's and your financial goals and needs, isn't it?
And when you're out there, shopping for life insurance, one of the key dilemmas you're going to face is this -
Term insurance, or non-term life insurance? Which kind to buy?
If this is the question you're struggling with, we have a handy guide that can help you choose between these two broad categories of life insurance. The first step, of course, is to understand what term life and non-term life plans are, and how they're different from one another.
So, let's get started there.
What is term life insurance?
Term life insurance is the simplest kind of life cover. It is a purely protective kind of insurance that offers only death benefits. So, if a policyholder passes away during the policy term, their nominee receives the sum assured under the term life insurance policy.
What is non-term life insurance?
Non-term life insurance is any kind of life insurance that is not a term plan. Sounds simple, right? But there are more details to this category. In fact, you have different kinds of non-term life insurance plans in the market. We've listed out the most common types below.
- Savings plans
Also known as endowment plans, savings plans provide the dual benefits of both insurance and savings in a single policy. So, if the policyholder passes away during the policy term, the nominees of the policyholder receive death benefits - just like it is in term insurance. But if the policyholder survives the policy term, the insurer pays out maturity benefits to the policyholder.
Unit Linked Insurance Plans (ULIPs) also offer two benefits in one - insurance and investment.
Through ULIPs, you can invest in various funds like equity funds, debt funds, and more to tap into the benefit of market-linked returns. Investments in ULIPs can be customized as per your life goals and risk appetite. In addition to this, ULIPs also offer the basic life cover that every kind of life insurance plan offers.
- Retirement plans
Retirement plans or pension plans, and the names suggest, are specifically geared towards helping you secure your finances so your golden years are stress-free. Your investments over the policy term give you financial benefits when you inch closer to retirement. And you can choose to avail them as a lump sum payout, periodical payments, or a combination of both.
- Child plans
Child plans are life insurance plans that help parents secure their children's future without any worry. They offer the advantage of insurance, savings and investments, so you can ensure that when your children's major milestones come along, you are financially well-prepared to meet them.
How are they different?
So, you now know what term and non-term insurance plans are. Let's now take a look at how they compare with one another, so you can choose between them more smartly.
Term life insurance
Non-term life insurance
Term insurance is the most affordable kind of life insurance and the premiums are very low.
The premiums for non-term life insurance are higher than the premiums for term plans.
Term plans offer death benefits to the nominee of the policyholder.
Non-term plans also offer death benefits to the nominee of the policyholder.
A typical term plan does not offer any other additional benefit. However, you can enhance the protection offered with add-on riders.
Depending on the type of the plan, non-term life insurance offers a variety of other benefits such as savings, investment, retirement planning etc.
Tax benefits 1
Term plans offer tax benefits under section 80C and section 10(10D) of the Income Tax Act, 1961.
Non-term plans also offer tax benefits under section 80C and section 10(10D) of the Income Tax Act, 1961.
How to choose between term and non-term life insurance plans?
As you can see from the table above, term and non-term life insurance have both similarities and differences. So, how do you go about making the choice between the two? Let's help you out here.
Term life insurance may be a good choice for you if:
- You have no other life insurance cover in place.
- You are looking for a pure protection plan.
- You want to obtain a high life cover at comparatively lower prices.
- Your key reason to buy life insurance is financial security for your surviving family.
Non-term life insurance may be a good choice for you if:
- You want to add the element of savings or investment to your insurance cover.
- You have a higher budget allocated for your life insurance expenditure.
- You are looking to secure specific life goals, like your retirement or your child's future expenses.
- You already have a term plan in place.
So there, that should help resolve the dilemma of choosing between term life and non-term life insurance. Whichever choice you make, the key is to ensure that it is aligned with your financial needs and your life goals. Only then can you attain those goals within the timeline planned.
Read next: I ALREADY HAVE A TERM PLAN, DO I NEED A RETIREMENT PLAN?
Already have a term plan? And unsure if you need to supplement it with a non-term plan to secure your post-retirement life? Our blog on this topic can help you resolve this dilemma.
SECURE EVERY ONE OF LIFE'S BIG MILESTONES - AND LET YOUR MONEY GROW OVER THE YEARS!
Why not enhance the basic protection that a term plan gives you, and protect your major life goals in the process?
With the ABSLI Guaranteed Milestone Plan (UIN: 109N106V09), you can do just that.
You get guaranteed additions that help your money grow - and the option to cover your spouse under the policy too!
1Tax benefits are subject to changes in tax laws. Please consult your financial advisor for more details.
ABSLI Guaranteed Milestone Plan (UIN: 109N106V09) is a non-participating traditional insurance plan. ADV/7/21-22/595.
ABSLI Life Shield Plan
A term insurance plan that offers you the flexibility of plan options suitable for your family's non- negotiable goals and ensure they need not compromise on their lifestyle. UIN: 109N109V04
- Choice of 8 plan options
- Cover your spouse under the same policy
- Longer Life cover till age 85
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