Difference Between Term Life Insurance and Traditional Life Insurance
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If you are confused between a term insurance and a traditional life insurance policy, two of the most common types of life insurance, read this post to know the parameters to make the right choice.
Term insurance and traditional life insurance are two most common insurance policies that people use to secure the lives of their loved ones. As such, no one can predict life and what is going to happen in life. The appearance of an unfortunate incident can take place any time in life creating great financial and emotional havoc. That is the reason why the head of the family seeks to have a life insurance policy to support the family in the event of their unfortunate demise.
Life insurance is a great way to help manage monetary risks by covering the insured and his/her family in times of emergency. Not only this, but term life insurance also helps under section 80C in tax deductions of up to Rs. 1.5 lakh.
Now, term and life insurance are two most common types of life insurance policies. On one hand, term plans are pure protection policies that provide death benefits to the nominee of the insured. On the other hand, a traditional life insurance policy allows both maturity benefit as well as death benefit. However, term insurance is cost-effective and most affordable of all life insurance types.
4 Things to Consider Before Choosing Between Term Insurance and Traditional Life Insurance
Here is a list of factors to take note of before you make your choice between a traditional life insurance or a term insurance.
Death Benefit
The death benefit that is offered to the nominee of the insured in case of an unfortunate demise of the policyholder is the major cause of difference between the traditional life insurance and term life insurance. In term insurance, death benefit is received when the insured dies during the term of the policy, while if he/she outlives the term, the benefit is not provided. On the other hand, in case of traditional life insurance, the policyholder is entitled to maturity benefit as well as death benefit, thereby allowing double benefits. However, you may also note that as compared to the traditional life insurance, the amount of death benefit offered under term insurance policy is much higher.
Flexibility to Surrender Policy
Another factor to consider is related to policy surrender. In case of term insurance, the policyholder can surrender the term plan easily without any hassle. However, this may not be that easy in case of traditional life insurance plans. Further, the insurer of your term plan might allow you to convert a term insurance plan into an endowment plan at an increased rate of premium. In traditional life insurance if the policyholder does not pay the premium, they lose all the benefits under the policy. Also, if they surrender the policy, they even lose out on the maturity benefits under the traditional life insurance policy.
Premium Payment
If you talk about term insurance, it is an easily affordable kind of life insurance that allows good coverage at low cost of premium. On the other hand, the best traditional life insurance plan would require the policyholder to pay a high premium if he/she wants to receive high coverage.
Tenure
The coverage under term insurance is offered for up to a particular age depending on your annual income, financial duties and so on. The maximum age limit for term insurance coverage is around 80 years. Conversely, in the case of a traditional life insurance policy, you can enjoy coverage from 5 to 100 years of age.
Term Life Insurance vs Traditional Life Insurance
Term insurance offers coverage for a certain period of time, often one to thirty years. If the insured dies within this period, their beneficiaries get paid. Conventional life insurance, on the other hand, covers the insured for the rest of his or her life and includes an investment component.
Term insurance is typically less expensive than standard life insurance. This is due to the fact that term insurance only offers coverage for a set period of time, whereas standard life insurance includes an investment component that can raise the overall cost of the policy.
Conventional life insurance is more comprehensive than term insurance since it covers the insured for the rest of his or her life. This implies that their beneficiaries will get a payout regardless of when they die. Term insurance, on the other hand, only offers coverage for a set amount of time, and if the policyholder dies before the policy expires, their beneficiaries receive nothing.
Conventional life insurance contains an investment component that can grow over time, providing policyholders with a retirement income source. The returns on these investments, however, are frequently smaller than those on other investing alternatives, such as mutual funds or stocks. Term insurance lacks an investing component, making it unsuitable for investment objectives.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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