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Advantage of term insurance over other types of life insurance

Term insurance policies are the simplest and most affordable type of life insurance. Read more to know how term insurance is better than other types of life insurance plans.

When it comes to life insurance, the intention of the policy is to provide financial security. Life insurance plans are unique regarding the benefits they provide and the motive of financial security that they fulfil.

Unlike other investment options, such as fixed deposit and mutual funds, only life insurance plans offer a benefit in case of premature demise of the policyholder. This benefit helps to meet the living expenses of the family and future financial goals if you are not around to cater to them. Given this, having a sufficient sum assured is necessary in today's time. Only if the sum assured is adequate, the insurance policy can promise complete financial security. This is where a term insurance policy becomes absolutely necessary. Let's understand how -

What is term insurance

Term insurance is a type of life insurance plan wherein premium is paid by the insured for a fixed duration during which death benefits will be paid out in case the life insured passes away. If the policyholder outlives the policy term, no maturity benefits are paid to the beneficiary. Therefore, term insurance plans are also referred to as pure life insurance plans wherein you receive a high sum assured by paying an affordable premium for a chosen tenure. Policyholders also have flexibility when choosing policy duration and the sum assured.

What are other life insurance plans?

Term life insurance is a type of life insurance policy, among others. Besides term insurance, life insurance policies come in other forms too. These other forms are –

  • Whole life insurance policies
  • Endowment assurance plans
  • Child plans
  • Money-back plans
  • Unit linked insurance plans
  • Pension plans

Term insurance vs. other life insurance policies

Term plans are one of the forms of life insurance plans. Hence, they have similarities with other plans. The similarities between term plans and other life insurance plans include the following:

  • Like other life insurance policies, term policies give tax benefits under Section 80C of the Income Tax Act, 1961.
  • The death benefit received against the policy is also exempted from income tax under Section 10(10D) of the Income Tax Act, 1961.
  • There is also a return of premium plans available which offers maturity benefits like other life insurance plans.
  • You can purchase term insurance online just like other life insurance plans.

Advantages of term insurance plans over other types of life insurance

Term plans are more affordable

Considering the nature of term insurance, its premium is much lower than other types of life insurance plans. In fact, among other life insurance policies, term insurance comes with the lowest premiums. A low premium rate allows you to afford a higher sum assured so that you can ensure financial security for your family in your absence. Other types of life insurance plans, such as endowment plans, on the other hand, have comparatively higher premiums. If you choose a higher sum assured in a traditional life insurance policy, you may not get it at affordable rates.

Let’s understand this with an example:

Annual premium for a 1 core term insurance policy – Rs. 13,747 (approx.)

Annual premium for 1 crore endowment policy – Rs. 1,79,672 (approx.)

You can imagine the difference! This why it is said that term insurance plans are affordable for the majority.

Term plans offer extensive coverage

Affording high coverage under other life insurance plans is difficult, considering the huge difference in the premium rates. According to the thumb rule, you should have a minimum cover of 10 to 15 times your annual income or at least a cover sufficient to meet future living expenses and the financial goals after considering inflation into account. Only term insurance offers adequate coverage without burning a hole in your pocket.

Offers complete future financial security

Optimal life cover at an affordable premium is the significant factor that differentiates term insurance from other life insurance plans. While other policies might give you guaranteed returns on maturity, lifetime annuities, or periodic money backs, term plans give a sufficiently large sum assured at low cost. This would help you to give your family complete financial security at an affordable premium.

Variants and riders

Term insurance plans allow the policyholder to enhance the coverage by availing optional riders such as critical illness rider, accidental coverage, and permanent disability cover. Moreover, they also come in four different variants to meet individual needs:

  • Level term insurance – A term plan where the sum assured remains fixed throughout the policy term.

  • Increasing term insurance – A term insurance policy where the sum assured increases at a predefined rate during the policy term.

  • Decreasing term insurance – A term insurance plan where the sum assured decreases at a specified rate during the policy term.

Return of premium – A type of term plan where the premiums paid are refunded to the policyholder/beneficiary if the life insured outlives the policy term.

Flexibility

Surrendering a term plan is similar to surrendering other life insurance plans. In the case of regular premium payment term insurance plan, if the policyholder stops paying the premium, the policy lapses and the benefits are terminated. However, in case of other life insurance plans, the maturity benefit is provided only of the policyholder completes the entire term of the plan. In case the policyholder surrenders the policy, he/she will not be able to recover the whole portion of the premium paid. Only a specific part of the premium amount is paid, after deducting the applicable charges. Moreover, most term insurance policies have limited and single premium payment options available, for such plans a surrender benefit is available.

Term plans are, therefore, quite different from other types of life insurance policies. It is important to understand the difference and then choose the most suitable plan according to your coverage needs and financial goals. A term insurance policy has a universal need and should not be missed.

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