Life is uncertain and the risk involved in life has been increasing everyday. So, it becomes crucial to have insurance coverage in order to deal with the uncertainties of life. Seeing the need of the insurance in everyone’s lives, many insurance companies come up with their insurance products. The plethora of insurance policies make it difficult to choose the right insurance plan. One must identify their needs and accordingly choose the best plan.
Before heading to pick an insurance plan, factors like time period, age, number of dependents, and the amount of coverage required before zeroing on an insurance policy must be considered. Before locking the deal with the insurer, a little bit of research about the plan, plan’s benefit, insurance company etc is needed. Different plans are associated with different advantages and disadvantages. Likewise, term insurance policy and a traditional life insurance policy also have some advantages and disadvantages. If you are planning to insure yourself and family and is confused between term insurance policy and a traditional life insurance policy, then take a look at these points in details to understand better.
Main Points To Consider Before Choosing Between Term Insurance policy and a Traditional Life Insurance policy:
1. Death Benefit: A life insurance policy offers both death and maturity benefit to the insured which means whether the insured person is dead or alive, the insurance company will pay the entire benefit to the insured or its beneficiary. While, a term insurance plan only provides death benefit in case of demise of the insured within the term period. It is the most common difference between a term insurance and traditional life insurance plan. The maturity benefit amount provided by life insurance is lesser than the death benefit provided in term insurance plans. Life insurance policy is considered better than term insurance plan as it avails the dual benefit of life protection along with returns on the investment. However, it is advisable to have at least one term insurance plan for higher death benefit in minimum premium amount.
2. Risk Covered And Savings: If the desired policy holder wants to create an investment corpus along with a life cover, then they should go for traditional life insurance policy. Whereas, if they want to cover the insured by providing a death benefit to the family of the insured or the beneficiary in case of their demise, they should go for term insurance plan. So better go for term insurance if you want to cover death risk and cannot afford to pay high premiums as it is to pay in life insurance policy.
3. Flexibility: The term insurance policy provides flexibility when it comes to surrender the policy. In term insurance, to surrender the policy is much simpler than surrendering a life insurance policy. In life insurance policies, the maturity benefit is provided only if the policy holder completes the entire term of the policy. But, in term insurance plan, if the insured stops paying the premium, the benefits of the policy terminates and the policy lapses.
4. Premium Amount: In Life Insurance Policy, the policy holders have to pay higher premiums than they have to pay in Term Insurance policy. Term insurance plan provides higher coverage at a minimal cost which is not provided in Life insurance policy. The term insurance benefits more to those individuals who can’t provide financial security to their family and don’t have a stable source of income.
5. Tax Benefit: It is assumed that only in a Life Insurance Policy, the policy holder can avail more tax benefit under section 80C of Income Tax Act against the premium, also the maturity benefit is tax-free. However, in Term Insurance Plan, alongwith the low premium paid, the tax deduction is also valid under section 80C of the Income Tax Act. So, if you want to invest in an insurance plan to gain tax benefit, then you can have it in both the plans under tax-saving schemes like ELSS, PPF, etc.
It is beneficial to own either Life Insurance Policy or the Term Insurance Plan.
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