Life is unpredictable and no one can make any guarantees on how long one lives. Unexpected incidents can create chaos and cause mental, physical, and financial strain on families. This is why life insurance is a very important investment, especially when you have the responsibility of your family. Life insurance helps to manage risks in terms of hospitalisation expenses due to illnesses and various other emergencies. The most common types of life insurance policies are — term life insurance and traditional life insurance.
Traditional life insurance provides life cover along with maturity benefits while term life insurance provides life cover and only death benefits in case the policyholder passes away during the duration of the policy.
These are the following parameters one needs to take into consideration before choosing the right life insurance policy between traditional and term:
1) Death Benefit
This is one of the major differences between the two policies. Term plans offer death benefits in case an unfortunate incident takes place while the policy is still active. Traditional insurance plans offer both death and maturity benefits. However, in a term insurance policy, the death benefits are much higher in terms of plans when compared to traditional insurance plans.
2) Risk Covered vs Savings
The premium payable on term insurance plans is lower, which allows you to procure a higher sum assured. However, the benefits paid are only received in case an untoward incident occurs. Traditional insurance plans offer both death and maturity benefits, which enables you to meet future financial goals as well as secure the financial security of your loved ones.
Term insurance plans are easier to surrender. You can just stop paying the premium and allow the policy to lapse. Also, insurance companies can provide you with the option to convert the term plan into an endowment policy, offering the same coverage at a higher premium. With a traditional insurance policy, if you do not pay the premium, you lose the policy benefits. If you surrender the policy before its term ends, you lose the maturity benefits.
4) Premium Amount
To procure higher coverage in a traditional insurance policy, you will need to pay a higher premium which may not be possible if you have financial limitations. A term life insurance policy is more affordable as the premium payable is low and you can afford a higher coverage.
5) Tax Benefit
Tax deductions on both term life insurance policy and traditional life insurance policy are the same irrespective of the premium amount paid.
Life insurance policies are crucial to your financial portfolio and to secure your future and that of your loved ones. Keep these parameters in mind before investing in an insurance policy.