When you hope for the ideal future, it is also important to prepare for contingencies, so your loved ones are not caught off-guard. One of the possibilities to prepare for is your absence from their lives if something unfortunate were to happen. An easy to prepare for such a situation is to get the right kind of life insurance policy.
For various reasons, term insurance plans have emerged as a popular option in the market today. In more ways than one, they are different from the traditional life insurance policies you can opt for. But is term insurance right for you?
Choosing a life insurance policy is a crucial decision usually taken for the long term. Let’s look at the differences between term insurance and life insurance by comparing what they have to offer.
Understanding Term Insurance and Life Insurance
Before we pit term insurance vs. life insurance, it is essential to understand what these plans are.
As the name suggests, Term insurance provides coverage for a specified period or "term”. It is one of the various life covers one can opt for. Hence, it can be considered as one of the offerings under the broader umbrella of life insurance. Apart from riders that the policyholder can opt for, these plans only offer death benefit. There is no maturity benefit offered for most term insurance plans.
Traditional Life Insurance
Often referred to as whole life insurance, traditional life insurance provides lifelong coverage and includes an investment component. This means that along with the death benefit, there is a maturity benefit if the policyholder survives the policy term. These policies build cash value over time, which can be borrowed against or withdrawn.
Key Differences Between Term Insurance and Life Insurance
Beyond the fundamental understanding of term plans and traditional life plans, let’s now compare how they are structured and what they have to offer. Here is a look at term insurance features and benefits vs life insurance’s.
Feature
| Term Insurance
| Traditional Life Insurance
|
Coverage Period
| Fixed term as chosen (e.g., 10 years)
| Lifetime or up to a specified age
|
Premium
| Relatively lower in value
| Depends on features chosen
|
Payout
| Death benefit only
| Death benefit + maturity benefit
|
Cash Value
| No
| May build up over time
|
Policy Expiry
| At the end of the term without payout
| As chosen upon expiry
|
Loan Facility
| Not available
| Available against the cash value
|
Benefits of Term Insurance
Some of the benefits of term insurance are:
Relatively lower premiums compared to traditional life insurance, making it popular among customers looking for an affordable option.
Customers get a straightforward life policy with no investment component, focusing purely on providing a death benefit.
You can choose to add riders as per your requirements.
Benefits of Traditional Life Insurance
On the other hand, traditional life insurance, which may include several types of plans, has the following benefits to offer:
Coverage for the policyholder's entire life or up to a specified age, ensuring permanent protection.
Accumulation of cash value, which can be used for loans or withdrawn.
Payout of a lump sum amount, if the policyholder survives the policy term, providing a savings component.
Choosing Term Insurance vs Choosing Life Insurance
Choosing between term insurance and life insurance plans can be quite difficult. Here are a few factors that may help you decide.
Choose Term Insurance if:
You need significant coverage at an affordable premium.You seek a straightforward insurance plan without an investment component.
You have specific financial obligations, such as a home loan, that you want covered in the event of your death.
You want to maximise your insurance coverage within a limited budget.
Choose Traditional Life Insurance if:
You desire lifelong coverage with an investment component.
You are looking for a policy that provides both a death benefit and maturity benefit.
You want to accumulate cash value that you can borrow against or withdraw.
You are willing to pay higher premiums for additional benefits.
To understand the differences between premiums for term plans and other life plans, and the coverage offered against them, you can use a term insurance calculator and compare it with estimates from other calculators for the plan of your choice.
Both term insurance and traditional life insurance have their own set of benefits and are suited for different financial goals and needs. Understanding the key differences and evaluating your personal requirements will help you make an informed decision.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. IndiaFirst Life Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and IndiaFirst Life and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability, or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
IndiaFirst Life Insurance Company Ltd.
IndiaFirst Life is promoted by, Bank of Baroda (65% stake) and Carmel Point Investments India Private Limited (26% stake). Carmel Point Investments India Private Limited has been incorporated by Carmel Point Investment Ltd, a body incorporated under the laws of Mauritius and owned by private equity funds managed by Warburg Pincus LLC. Union Bank of India (9% stake) is also one of the shareholders of our Company.
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