A life insurance policy is an essential tool that helps you protect your loved ones financially. However, it can sometimes be confusing to choose a suitable policy. Two of the most common plans are traditional and term life insurance policies.
A traditional policy offers the financial cover for the policyholder’s entire lifetime. If you are asking what is term plan, it is a life policy that stays active for a fixed period as per your choice. Both plans have their advantages. Here,we will help you understand the differences between the two life insurance policies and choose the right one.
Term insurance vs. traditional life insurance
Below is a list of features found in both life policies and how they differ:
1. Death benefit
The death benefit is the financial cover that the insurer offers in case of an unfortunate event leading to the policyholder’s absence. Both the policies provide a death benefit, but term insurance offers a more extensive cover compared to a traditional life policy. However, a term plan is a pure form of life insurance policy, as it provides only the death benefit. On the other hand, a traditional policy offers both death and maturity benefits. Due to this, the premium for a traditional life insurance policy is higher.
2. Savings vs. risk
When you buy term insurance, it ensures the financial stability of the nominees in case you cannot be there for them. You should consider a term plan as a risk-minimizing investment option. Even though a term plan offers no maturity or survival benefits, the sum assured is quite high. However, traditional life insurance policies have the advantage of savings, as you have the option to accumulate wealth. The insurer provides the monetary benefit when the plan matures. This facility results in higher premiums compared to a term plan.
3. Flexibility of surrendering the policy
When it comes to the feasibility of surrendering a plan, a traditional life insurance policy and a term plan are entirely different. If you have to surrender your life insurance policy, the insurer does not pay the maturity benefit. They only return the premium, which you have already paid, but after deducting certain fees. To get the maturity benefit, you have to pay the premium for the entire policy tenure. Surrendering your term plan is a more straightforward process. If you cannot pay the premium, the insurance provider terminates the policy.
When it comes to the premium, a term plan is quite economical as compared to a traditional life insurance policy. A traditional plan charges you a higher premium, as it offers both death and maturity benefits. If you are unable to afford such a high price but still want a traditional life insurance policy, the coverage will not be adequate. This is where a term plan serves you better. If the goal is to provide your loved ones with financial security, a term life insurance policy will be a much cheaper option. You can use a term plan premium calculator to find exactly how much to pay for the required sum assured.
Which one to purchase
The choice between the two plans depends entirely on your financial goals. If you want to create a fortune with your life insurance policy, opt for a traditional plan. However, if you intend to ensure the financial comfort of your family, a term plan is the best option. Both policies have their unique advantages; hence, it depends on you to decide which form of life insurance policy to purchase.
If you finalize on a term life insurance policy, use a term plan premium calculator to compare the available options, and find an affordable plan quickly. Moreover, it is essential to study the policies carefully to understand which of them is more suitable for you.