Life Insurance vs Term Insurance: Life insurance is the best option for financial security of the family. Especially if you are the main earning member of the family. Life insurance is mainly divided into two categories, term insurance and traditional life insurance
Life Insurance vs Term Insurance: Life insurance is the best option for the financial security of the family. Especially if you are the main earning member of the family. Life insurance is mainly divided into two categories, term insurance and traditional life insurance. Both have the same purpose, to provide financial security to the family after the death of the policyholder. However, there is a lot of difference in their structure, cost and benefits. It is important to understand both these schemes to choose the right option.
What is term insurance?
Term insurance is an easy and inexpensive life insurance option, which provides only risk coverage. If the insured person dies during the policy term, the nominee gets a fixed amount. However, if the policy term is completed and the insured person survives, no money is returned.
Benefits of term insurance:
Term plans offer higher insurance amount at lower premiums. For example, insurance of ₹1 crore can be taken for just ₹500-₹1,000 monthly. Riders like critical illness, accidental death, and premium waiver can be added to the policy for additional protection. These plans provide more coverage at a lower cost.
Disadvantages of term insurance
If you survive the policy term, there is no money back. The coverage period is limited to 20-40 years, after which it may have to be renewed.
What is traditional life insurance?
Traditional life insurance such as endowment or money-back plans offer both insurance and investment. In these, along with death benefits, maturity benefits are also available on completion of the policy term.
Benefits of life insurance
The entire money is returned if the policy holder survives, making it both insurance and saving. The money deposited in these plans creates cash value, which can be withdrawn during the policy term. These plans are tax-exempt under Section 80C of the Income Tax Act. Apart from this, a loan can also be taken by pledging the cash value.
Disadvantages of life insurance
They cost more than term insurance. For example, the premium of ₹1,000 for a coverage of ₹1 crore gives coverage of only ₹10-20 lakh in traditional plans. The returns on these plans are low in terms of investment and are not attractive compared to other options like mutual funds or stocks.
Which plan is right for you?
The choice of policy depends on your financial situation, objectives and priorities.
Reasons to choose term insurance
You want an affordable, high-coverage policy.
You are young, have dependents in the family, and want to cover financial obligations like home loans.
You want to focus only on risk coverage without maturity benefits.
Reasons to choose life insurance
You can afford higher premiums and want insurance along with savings.
You are interested in long-term financial security and maturity benefits.
You want tax benefits and the convenience of withdrawing cash value.
