The most common types of life insurance are term insurance and traditional life insurance, but before choosing the better option, keep following parameters in mind to make the right purchase.
Life is unpredictable. An unfortunate incident can cause great havoc, giving financial, mental, and physical stress to the family. Being the breadwinner of the family, having a life insurance policy can help you and your family to a great extent as it helps you manage risk by providing you financial coverage in case of an emergency. Moreover, life insurance is also a great tax saving tool as it helps you save up to Rs. 1.5 lakh under section 80C of the Income Tax Act, 1961. The most common types of life insurance are term insurance and traditional life insurance.
Term insurance is a pure protection plan, offering death benefit to the nominee of the policyholder, whereas, traditional life insurance plans offer maturity benefit along with death benefit. Term insurance is one of the most affordable types of life insurance.
Before Choosing Between Term Insurance and Traditional Life Insurance
Death Benefit:
One of the major differences between term and traditional life insurance is death benefit. Term insurance provides death benefit in case the policyholder passes during the policy tenure. In case if the policyholder outlives the term, death benefit is not provided. Whereas, with traditional life insurance plans, one can get both maturity and death benefit. Compared to traditional life plans, the death benefit amount under term insurance is much higher.
Flexibility:
In case if you wish to surrender your term insurance plan then you can easily do so in comparison to traditional life insurance. Insurance companies do give you an option to convert a term insurance plan into an endowment plan, though at an increased premium. In case of traditional life policy, in case you do not pay the premium, you lose out on the policy benefits and lose out on the maturity benefits in case of policy surrender.
Premium Amount:
Term insurance is one of the most affordable types of life insurance, offering high coverage at a low premium. However, under a traditional life plan, you need to pay a high premium to get higher coverage.
Tenure
Term insurance coverage is provided up to a certain age based on your income, financial responsibilities, etc. Coverage can be availed for a maximum of 80 years. On the other hand, a life insurance policy can be purchased for 5-100 years.
Both term and traditional life insurance plans offer you tax benefits under section 80C and 10(10)D of the Income Tax Act, 1961. The premium for both types of insurance can be paid on monthly, quarterly, half-yearly, yearly basis. Additional coverage can be opted for by purchasing riders such as critical illness, waiver of premium, etc. at an extra premium. Life insurance is a crucial investment to keep your and your family’s financial future secured. However, when choosing the policy, keep the above parameters in mind to make the right purchase.
Also Read: Can I Buy Multiple Term Insurance Policies?
