Life is unpredictable, to say the least, and full of uncertainties as well. All it takes to break the harmony and shatter a happy picture is an accident, a critical and gripping illness or a raging global pandemic that shows up out of nowhere. Current pandemic times have driven everyone towards the financial comfort and safety net that insurance policies can provide.
Generally, you will find that life insurance policies are the go-to policies for people who wish to secure their family financially, while term insurance policies are a part of this bigger umbrella. The amount your family receives from a life insurance policy can help them finance a pending mortgage, outstanding loans, credit card dues and many other financial obligations that they may be facing.
Apart from these, you can also ensure that your family is not suddenly burdened with financial troubles while they are already grieving a loss. On the other hand, the best term plans are considered to be the simplest form of life insurance plans, which pays out the sum assured to the family of the insured if the insured dies during the term of the policy. However, if the person, i.e., insured survives the policy term, then there is no pay-out for the same.
Term Insurance Vs. Traditional Life Insurance
Let us take a detailed look at both these types of insurance policies:
- Term Insurance Policy
This is a kind of life insurance policy that offers coverage for a specific period, i.e., 5, 10, 15, 20 or 30 years. If the policyholder dies during the coverage period, then the insurance company pays the death benefit to the policyholder’s beneficiary, which is one of the major term insurance benefits. On the other hand, if the policyholder survives the term, then the coverage stops, and the insurance company pays nothing.
- Traditional Life Insurance
A traditional life insurance policy, on the other hand, is a little different from term insurance. This type of policy ends when the policyholder is no more and offers cash value benefits during the policy term. The policyholders can borrow against this cash value anytime during their tenure for an emergency or other reason as well.
If you want to know which one is better for you, term insurance or traditional life insurance, then let us compare a few benefits of both these policies. Read on to know more.
- Investment Motive
While the traditional life insurance plans are devised to promote savings and help the policyholder even during the policy term, term insurance, on the other hand, has a straightforward motive of offering risk cover at a lower cost. As a result, you can secure your family members in your absence by leaving them a lump sum with the best term plan.
Alternatively, you can enjoy a lifelong life insurance plan, where you can also withdraw the amount against your cash value in case of emergencies. If you want a balanced financial portfolio, then remember to pick between the two policy types wisely.
The best term plan can offer your family a financially secure and worry-free future, while a life insurance policy can offer a maturity benefit for higher premiums.
- Premiums
You will pay higher premiums towards a life insurance plan as opposed to a term insurance plan because they offer both maturity benefit and death benefit. However, term insurance plans only offer a death benefit, so the premiums tend to be on the lighter side.
It is important to consider the needs of your family and assess your current financial situation in order to make this decision easier. Once you know how to take care of your family’s expenses and upcoming liabilities or bills, it will become easier to decide which premium is affordable and suitable to your budget. Subsequently, you can choose the best term plan to secure your loved ones!
- Tax Benefit
Another major advantage a salaried person must keep in mind while estimate the life insurance cover they need, is the tax deduction offered against their premiums under Section 80C of the 1961 Income Tax Act.
According to the latest update, the old tax regime allows a deduction of up to Rs. 1,50,000 (total of all payments and/or investments from this section) including premiums against your life insurance policy, provided that the yearly premiums do not exceed 10% of the sum assured to the policyholder. You can avail of this tax benefit when it comes to both insurance plans, as both of them have their own merit when it comes to saving taxes and planning finances.
Be it term insurance or life insurance, one must understand the importance and merits of both, know what their family needs more, and then make a decision. Remember to do your due diligence, compare policies online before you sign on that dotted line, and enjoy the peace of mind that the best term plans can offer!
