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 stay prepared financially to deal with an unannounced emergency such as a 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. Due to multiple options, selecting an insurance policy in the market isn’t easy. The two most popular options are term insurance and traditional life insurance. Although these insurance products differ, they are often perceived as the same.
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 you and your insurer. When you buy standard life insurance, your insurer should compulsorily offer a payout to your nominees, which is 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
What is term insurance?
Term insurance is a sub-subject of life insurance. It is the purest form of insurance, aiming 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 higher 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 | It 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 of 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 in return after specific deductions. |
| Maturity benefit | Typically, you might not receive maturity benefits under the term policy. If you wish to receive survival benefits, select a term policy that can return your premium amount on the maturity date. | Under traditional life insurance, you can receive maturity and 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 essential to your financial planning. Ideally, you should purchase a term policy and a traditional life insurance scheme together. While conventional life coverage can provide better returns and life protection, term insurance can secure your loved ones financially with a minimal premium payment. Before selecting both these policies, compare multiple options and choose a plan that can include coverage at an affordable price.
