Term Life Insurance Vs Traditional Life Insurance: Which Is A Better Option?

When we look at life, we are constantly searching for strategies to protect the things we value most. Assume you have recently purchased a new phone. What will you do? You buy a new protective case. We must prevent it from being broken or scratched, right? How about when you finally purchase the car of your dreams? What comes to mind first? Insurance coverage! Because you want to make sure it is shielded from accidents or catastrophes that may occur unexpectedly.

Now, meet Sarah. She is a young mom who wants everything to be perfect for her family. She wants to ensure that they are always safe, come what may. This is why she is thinking about buying insurance - a safety net for the unexpected twists life can bring. When she started exploring her options, she found that there are different kinds of insurance. Among them, she was interested in two plans. One type is called term life insurance. It offers financial protection to your dear ones for a specific time, say 10, 20 years, etc. Another type is whole life insurance, a traditional plan that covers her whole life along with a saving component.

Now, you might wonder - which one is better for Sarah and her family? Or, more importantly, which is better for you? How do you determine what's ideal? You can choose the wisest option only if you are aware of your options.

Hence, let's examine each in detail to determine which would be the best option among term life insurance vs. traditional life insurance.

What Is Term Life Insurance?

Term life insurance is actually very easy to understand; it protects your family financially and comes to their aid when they need it most. How does it make it happen? If an unfortunate incident takes place while the policy is in force, the insurance company pays the people you love an amount that is predetermined.

But is the payout customisable? Yes! Depending on the claim payout choice you choose when you apply for the policy, your family will receive this compensation. However, you should remember that if you make it through the policy term, there is no payout coming your way.

For instance,

Ajay is 28 years old. He is married to Vidya and has one kid. Ajay has a car loan and home loan. He also plans to send his kid abroad for his higher education. With all these plans in mind, he is worried that if something were to happen to him, his family will struggle a lot. He, thus, buys a term life insurance policy with a sum assured of Rs. 75 lakh. He chooses the lump sum payout option and a policy duration of 30 years.

Situation 1 -
Ajay pays his premiums regularly. One day, he gets admitted to the hospital because of a heart attack. However, the doctors could not save him. This left his family in complete shock. His family was shattered! But Ajay made sure that his family did not suffer financially. The insurer paid out a sum of Rs. 75 lakhs, which ensured that his family could close all pending loans and continue their standard of living.

Situation 2 -
Ajay pays all his premiums due. He is hale and healthy even after he has completed 30 years of buying the term insurance policy. In such a scenario, Ajay or his family do not get any payout from the policy.

What Is Traditional Life Insurance?

Traditional life insurance policies come in many types, such as whole life insurance, money back plan, endowment plan, etc. How good are they? Well, they offer savings and investment benefits, risk coverage, guaranteed# fixed income returns, etc. Not only do these plans safeguard your family's finances, but they also assist you in saving for your immediate or future needs. These needs can be - saving for your retirement life, your kids’ higher education, or even weddings. In addition to giving amazing opportunities for growth and financial stability, they are made to safeguard your future.

For instance,

Ajay’s cousin Saketh is a businessman. He does not have many financial responsibilities, but he wants to leave a legacy for his son. He thus invests in a whole life insurance policy with a sum assured of Rs. 50 lakhs.

Situation 1
Saketh goes out for a business trip a few years after he bought the policy. Unfortunately, he passes away in a road accident. His entire family gets heartbroken! However, the insurance company comes to their rescue and pays out the death benefit of Rs. 50 lakhs to his family. This money helps them take care of their necessary expenses, pay off business loans, and also use it for their son’s education.

Situation 2
By god’s grace, Saketh lives through the entire policy term. He then receives a maturity benefit of Rs. 50 lakhs from his insurer. This means that he will leave behind this wealth as a parting gift for his loving son.

Now, to help you make a better decision for yourself, let's compare term life insurance vs traditional life insurance.

Differences Between Term Life Insurance And Traditional Life Insurance

Here are some of the differences that you should know about -

Let’s now get to the important question of the day!

Which Option Is Better For You?

Let's imagine a situation where you only require coverage for a limited time, like until your children have grown up or until your house loan is settled. In this case, term life insurance is like having a reliable umbrella just when you need it. It offers simple protection without any extra conditions added to it. No complicated investment stuff here! It is straightforward and often quite affordable. Sounds pretty neat, right?

Now, let's switch gears and talk about traditional life insurance. Picture this - you want something that not only protects you but also helps your money grow. Traditional life insurance is like a tree that offers shade now and gives fruit in the future. Yes, the premiums might be a bit higher, but you get a policy that includes both insurance and a savings or investment component. For those who can spare a bit more money for these added benefits, this option might just be perfect.

Thus, the choice between term life insurance vs traditional life insurance depends on what you value more in your financial journey.

Wrapping Up!

When you decide between term life insurance vs traditional life insurance, you will first have to understand your life needs. You should know that term life insurance is one of the best options out there if you are looking for simple and affordable coverage. However, traditional life insurance can be a better choice if you seek a plan that provides investment or savings opportunities along with protection. Thus, you should take note of your objectives, financial status, etc., and decide accordingly. Ultimately, the option that best suits your life needs is actually the most ideal one.