A life insurance plan has become a necessity due to the rising uncertainty of life. According to a report, 86% of the Indian population feels that life is uncertain. While it might not be simple to predict the uncertainties, you can manage to stay prepared financially to deal with an unannounced emergency such as death within the family, loss of income, critical illness, and so on.
Choosing the right life insurance plan can provide financial support to tackle a contingency within the family. It isn’t easy to make a final selection of an insurance policy in the market due to multiple options. The two most popular options can be term insurance and traditional life insurance. Although both these insurance products are different, they are often perceived as the same product.
Before you pick a life insurance policy from either of the two, let’s understand the meaning of these two products separately and in detail:
What is traditional life insurance?
A traditional life insurance product is a contract between two people: you and your insurer. When you buy traditional life insurance, your insurer should compulsorily offer a pay-out to your nominees included under your policy after your demise.
Under traditional life insurance, you can choose from different types of options mentioned below:
- Endowment policy
- Money-back plan
- Whole-life policy
Term insurance is a sub-subject of life insurance. It is the purest form of insurance, which can aim to safeguard your loved ones financially. After your demise, your nominees can receive death benefits to maintain their standard of living. However, if you choose a smart online term plan, you can obtain death benefits and survival benefits.
The primary aim of term insurance, as well as traditional life insurance, can be family security. Although the concept of these two policies can be the same, there can be significant differences in their features and benefits. Therefore, let’s go through the differences between term insurance and traditional life insurance for better clarity:
|POINT OF DIFFERENCE||TERM INSURANCE||TRADITIONAL LIFE INSURANCE|
|Premium||Relatively low in comparison with traditional life insurance||Usually high than term insurance.|
|Policy term||The term of your policy can range between 5-80 years.||The term can be up to 99-100 years.|
|Death benefit||Can provide death benefits to your family members until the selected tenure of your term policy||Can cover you until your death or for an entire lifetime|
|Tax benefit||Under Section 80C of the Income Tax Act, 1961, tax benefits can allow you to claim a deduction up to Rs. 1,50,000 on your taxable income||Same as term insurance|
|Flexibility||You should stop paying the premium if you want to discontinue your term policy.||You might not be eligible to receive maturity benefits if you surrender the policy. However, you can receive the premium amount after specific deductions in return.|
|Maturity benefit||Typically, you might not receive maturity benefits under term policy. If you wish to receive survival benefits, you should select a term policy that can return your whole premium amount on the maturity date.||Under traditional life insurance, you can receive the maturity benefits along with the death benefits.|
|Loan provision||Term plans might not provide you with loans on top of the policy.||Traditional life insurance can allow loans against the cash value.|
As highlighted above, life insurance should be an essential part of your financial planning. Ideally, you should purchase a term policy as well as a traditional life insurance scheme together. While traditional life coverage can provide you with better returns as well as life protection, term insurance can secure your loved ones financially with a minimal payment of premium. Before selecting both these policies, compare multiple options and choose a plan that can include coverage at an affordable price.