Life insurance is a security cover that everyone must purchase, as it protects your family members. In the event of your unfortunate demise, the policy will secure your family’s financial needs. Apart from providing financial support to the family, buying an insurance is a great way to get tax benefits and reduce your annual tax payment.
However, when choosing the right kind of life insurance policy, you may feel confused about whether term insurance is better than a traditional life insurance policy. To make the right choice, it is better to know about the difference between the two.
- Death benefit
One significant difference that sets a term insurance policy from the traditional policy is the death benefit. Since the term plan is a pure protection plan, it pays the death benefit only in the event of your demise during the policy period. The traditional plans, on the other hand, pay both death and maturity benefits. But the death benefit from term plans is much higher compared to other insurance plans.
- Premium amount
The premium for term insurance is the lowest among all other types of life insurance policies. You can purchase a term plan with a high sum assured at an affordable premium; you can buy a term plan for a premium as low as Rs. 500 per month. The premium for other traditional life insurance policies is higher as compared to term insurance as they have savings or investment components or both.
- Loan facility
A financial emergency can occur at any time. And in such times, having a traditional life insurance policy can come to your rescue as you can avail of a loan against your policy. Typically, the insurance companies determine the maximum amount you can borrow based on the cash value of the policy.
With term insurance, you cannot avail of a loan against your policy. This is because it does not have any cash value, and the policy expires at the end of the term.
- Surrender value
A term insurance policy does not have any surrender value. When the policy expires, the coverage ceases to exist, and you do not get any benefit or returns. However, you can continue the policy and get protection against death by renewing the policy and paying the premium.
In traditional life insurance, even if you have not paid the premium and voluntarily terminated the policy before maturity, the insurance company will pay you the surrender value. The amount you receive will depend on the number of premiums you have paid before.
- Flexibility
Term insurance is much more flexible than traditional life insurance policies in terms of policy surrender. If you want to surrender your term plan, all you need to do is stop paying the premium; the policy cover and its benefits will get terminated.
However, if you want to surrender your traditional life insurance policy before the term or maturity period, you will recover only the paid-up value.
Also, term insurance plans are flexible in terms of renewability. You can easily renew your term plan and convert it to any other endowment policy by paying the adjusted premium.
Final Word
Now that you know the difference between term insurance and other traditional life insurance policies, choose the one that best suits your specific needs.
