Life insurance helps you create a backup for your dependents to protect their future. However, while purchasing a policy, you may find yourself getting stuck choosing between term plans and traditional life insurance. To make the choice easier for you, today, let’s understand both these plans and compare them based on some key aspects below.
What Is Term Insurance?
Term insurance is a policy that offers the policyholder a pure risk cover in the event of a mishap. In exchange, the policyholder must pay a pre-determined premium on a regular basis. Most individuals purchase a term plan to safeguard the financial interests of their family. In case of an unfortunate mishap, the insurance provider shall pay out a lump sum benefit that your loved ones can use to manage their finances. Such a policy is popular for its affordable premiums, enabling you to opt for a high sum assured amount. To learn the premium rate you can avail for a policy, check out the term plan premium calculator now!
What Is Traditional Life Insurance?
A traditional life insurance plan provides a life cover along with a savings component. So, in your absence, the insurance provider will pay out the death benefit but if you were to survive the policy term, then you can avail a maturity benefit. Therefore, you can secure your loved ones and plan to fulfil long-term goals with a traditional life insurance plan. Depending on your insurance requirements, you can choose from a variety of policies available in the market. Some suitable ones are whole life insurance, endowment policy, money-back plan, Unit-Linked Insurance Plan (ULIP), etc.
Benefits of Term Insurance Vs Traditional Life Insurance
Compare some features and benefits of term insurance vs traditional life insurance below:
As mentioned above, the premium price for a term plan is much more cost-effective when compared to traditional life insurance. You can choose a high sum assured for a low premium quote with term insurance. Traditional life insurance has a higher premium rate because it isn’t just a pure risk cover. The plan also has a savings component that you shall receive as a maturity benefit at the end.
Sum Assured Amount
With a term insurance policy, you can enjoy a higher sum assured amount without much trouble. Hence, if something happened to you, the lump sum benefit would surely secure your family’s finances. But getting a high sum assured amount with a traditional life insurance policy can be expensive. This is because your premium is going towards the risk cover and a maturity benefit.
Term plans do not have a maturity benefit and hence, if you were to survive the policy tenure, you wouldn’t get any survival benefit. But that isn’t the case with traditional life insurance. By investing in such a policy, you can plan future life goals and achieve them with the lump sum payout. Therefore, a key perk of traditional insurance is wealth creation for the long term.
Both insurance policies offer you tax benefits on the premium amount as well as the death benefit. So, you can claim the premium as a deduction under Section 80C of the Income Tax Act up to a limit of INR 1.5 Lakh. The death benefit can be claimed under Section 10(10D). However, tax benefits are also available on the maturity benefit of the traditional life insurance.
With the above comparative view, you must have understood both insurance plans in detail. Each of them serves a different purpose and thus, based on your requirements you can buy the most suitable one. If a pure risk cover is what you need for your family, then you can buy term insurance online without any hassle. But wealth creation along with a life cover suits you better, then you can explore traditional insurance options.