Comparing Term Insurance Plans With Traditional Life Insurance cover

If you are the sole earning member of your family, the role comes with a multitude of responsibilities. You are responsible for your family’s goals and needs like giving your children a good education, supporting your retired parents, taking care of everyday expenses, and so on. You may also have taken loans for buying a house, vehicle, etc. And, to top that, you may have your own set of financial goals like traveling the world, setting up your business, to name a few. You can achieve all these responsibilities and goals with a life insurance plan. Insurance companies offer a huge variety of life insurance plans that cater to different needs, one of them being term insurance. In this article, we’ll compare term insurance plans with traditional life insurance plans - so you can make the right choice.

What is Term Insurance?

Term insurance is a type of life insurance product that aims to provide financial security to your loved ones in case of your untimely demise. It pays your family a fixed sum of money in case you pass away during the policy duration. You are required to pay the stipulated premiums on time to enjoy coverage. Your loved ones can use this money to take care of their financial needs and goals in your absence like paying off loans, children’s education, everyday expenses, etc. You won't get any maturity benefits if you live past the policy's term. For instance, Suman purchases a term plan with a sum assured of Rs. 30 Lakhs for a policy duration of 45 years. If she passes away during these 45 years, her nominee will receive the death benefit. On the other hand, if she lives past the 45-year policy duration, she will not be eligible to receive any benefits under the policy.

What is Traditional Life Insurance?

Traditional life insurance policies not only serve as a helping hand for your family in case of emergencies but also offer a maturity benefit - if you outlive the policy term. The maturity benefit is usually the sum assured but some insurers also provide guaranteed returns and bonuses in addition to the sum assured. This can help you achieve your long-term financial objectives, such as funding your child's education, child's wedding, retirement, vacations, etc. Traditional life insurance policies come in a variety of forms, including whole life insurance, endowment plans, money-back policies, child plans, pension plans, etc. Have a look at how an endowment plan works: Mukesh buys an endowment policy for 20 years with a sum assured of Rs. 20 lakhs in 2022. Mukesh chose the premium payment term of 10 years, where he pays Rs. 1,50,000 annually. The maturity and death benefits are equal to the sum assured chosen. He nominates his son Kartik as the nominee/beneficiary. Now, depending on the circumstances, either Mukesh or Kartik will receive the maturity or death benefit, respectively.
👉 If Mukesh survives the policy term, he is entitled to receive a sum of Rs. 20 lakhs in the year 2042.
👉 On the other hand, if Mukesh passes away say after the 10th policy year, Kartik will receive the death benefit of Rs. 20 Lakhs in 2032. Once the claim is settled, the policy will come to an end.

Term Insurance vs Traditional Life Insurance: What is The Difference?

1️. Benefits Offered

Both plans provide different benefits.
👉Term Insurance
offers a death benefit to the nominee in case of your demise during the term of the policy. But no benefit is given if you survive the policy term.
👉Traditional Life Insurance
offers either a death benefit if you pass away or a maturity benefit at the end of the policy term if you live through the policy period. So, it has dual benefits.

2️. Insurance Coverage and Savings

👉Term insurance
only provides a death benefit. Your family will receive the sum assured in the event of your passing away. If you want to protect your family’s future financially, then this is the most ideal option for you.
👉Traditional life insurance policies
give you a death benefit as well as a maturity benefit. You can achieve your financial objectives, such as saving for retirement or a child's education, with a traditional life insurance plan. If you want to build an investment corpus along with getting a life cover, this plan will be ideal for you.

3️. Premiums

👉Term insurance plans
have low premiums as they only offer a death benefit and are a pure risk cover. This makes them popular among millennials.

👉Traditional life insurance policies
have more expensive premiums, since they offer maturity coverage along with insurance coverage.

Term Insurance & Traditional Life Insurance: Similarities

1️. Tax Benefits

Tax benefits are available under sections 80C and 10(10)D of the Income Tax Act of 1961 for both term and traditional life insurance plans.
➔ You may claim tax deductions of up to Rs. 1,50,000 annually for the premiums you pay under section 80C.
➔ Under Section 10(10 D), the policy's death benefit or maturity benefit is not subject to taxation.

2️. Premium Payment Frequency

Generally, the premiums for both types of insurance can be paid on a monthly, quarterly, halfyearly, yearly basis. This, however, will depend on the insurance company you buy the term policy from.

3️. Riders

Additional coverage can be opted for by purchasing riders such as critical illness rider, accidental disability rider, waiver of premium riders, etc. at an extra premium. These riders will provide additional benefits on the happening of specific circumstances.

Conclusion

This was all about term insurance and traditional life insurance policies. Life insurance is an important investment to keep your and your family’s financial future secured. When deciding which policy to buy, keep the above parameters in mind to make the right purchase.