Having a family is a precious gift as well as a responsibility. You try your best to fulfil their requirements, both emotional and monetary. It is also necessary to ensure that your family doesn’t suffer any financial setback in case of your untimely demise. This is where the decision to buy a reliable life insurance plan comes into the picture. The two major options to choose from are a traditional life insurance plan and a term plan. To choose better, you must know and understand both the types well, and this article will help you with the same.
Life insurance: A traditional life insurance policy is one in which the insured person pays premiums into a general fund and receives benefits based on the statistics. In case of a traditional life insurance policy, the basic sum assured or coverage amount is taken as the amount of the premiums payable.
Term insurance: A term insurance policy is a type of life insurance policy that covers the insured person against the risk of untimely death. If the policyholder passes away during the tenure of term insurance, then the sum assured amount is paid to the selected nominee. It offers a substantial coverage amount at an affordable premium rate.
Coverage – A term insurance plan provides coverage specifically against the premature death of the policyholder. This means the benefit is paid only if the insured person passes away during the policy tenure.
On the other hand, a traditional life insurance plan comes with the benefit of premature death as well as maturity benefit. This means if there is no claim during the policy tenure, then the insured person receives maturity benefit.
Premium – A term insurance policy covers you only against the risk of untimely demise, which is why it offers significant coverage amount at an affordable rate of premiums. However, a traditional life insurance plan offers a wider scope. Hence, it comes at a higher premium amount.
Surrender value – In case of term insurance plans there is no surrender value or paid up value. This means if you stop paying premiums, your coverage is terminated. In case of life insurance plans, the insured person can get some benefits of paid premiums. Also, you can voluntarily terminate your policy by surrendering it.
Bonus – Traditional life insurance policies like endowment policy, money back policy, or children’s plans come with bonus additions, guaranteed additions, and loyalty additions that enhance the benefits of a policy. A term insurance policy does not come with any additional benefits.
Flexibility – Traditional life insurance is flexible in terms of providing additional benefits like maturity benefits and surrender value. However, a term plan is rigid as it only provides the benefit of premature death and no addition to the sum assured.
Both term plan and traditional life insurance plan comes with different benefits and limitations. Hence, you must study your personal requirements and then make a decision.