Investing in a life insurance policy is the most common way to provide financial security to your family in your absence. Life insurance pays the policy benefits to your nominees if an unfortunate event occurs during its duration.
Traditional life insurance policies offer maturity or survival benefits. However, the premium for such policies is high and expensive for most people. Insurers also offer term plans, which are pure life covers available at an economical premium.
What is a term insurance plan?
It is a straightforward life plan that pays the benefits to your nominees if something untoward happens to you during the policy duration. Most term plans do not pay any survival or maturity benefits. So, the premium is lower compared to traditional life insurance policies.
Some term insurance policies offer a return of premium option. When you buy term insurance with return of premium, the insurer pays the entire amount paid at the end of the policy duration. However, the premium for these plans is higher than the amount paid for a regular term policy.
Differences between term insurance and traditional life insurance policies
Although both term and regular life insurance policies ensure financial security for your family in your absence, there are certain distinguishing factors between these two options. Here are three such points of comparison:
- Policy benefits
Your nominees get the term insurance benefits only in your absence during the policy duration. If you survive the policy period, most term plans do not pay any maturity or survival benefits.
On the other hand, regular life insurance policies pay the sum assured (SA) to your nominees if an untoward incident occurs during its duration. If you survive the policy period, you will receive the maturity benefits as per the terms and conditions of the plan.
- Premium cost
There are no term insurance benefits on maturity. As these plans are pure life covers, the premium is more affordable. This allows you to avail of a higher coverage at a lower premium, ensuring that your family is financially secured in your absence. You can easily opt for a higher SA based on their requirements and future financial goals, ensuring they do not face any liquidity constraints when you are not there to look after them.
In comparison, traditional life policies are costlier, and you may be unable to afford a higher SA. This may limit the benefits your family will receive if a tragic event occurs during the policy tenure.
An important consideration is that the premium of a term plan increases if you opt for a longer duration and age. However, the amount remains constant during the entire duration irrespective of the age and tenure when you buy a traditional life insurance policy.
- Policy duration
You can choose the term policy period based on your age and current and future monetary objectives. On the other hand, most traditional life policies have a minimum duration of five years and provide coverage for a longer period.
Things to consider while choosing the right life insurance policy
When you consider buying a life insurance policy, you must not simply think of it as an investment avenue or as a means to achieve your financial objectives or to save tax. You need to keep several other factors in mind. These include:
- Maximum coverage
- Current liabilities
- Present financial situation
- Future financial objectives
There are several plus points of buying an online term plan, which includes lower premium, convenience, and quick process. Additionally, you can procure comprehensive coverage through riders, such as waiver of premium, permanent disability, critical illness, and accidental death benefits at a nominal cost.
Both term plans and traditional life insurance policies offer flexibility to pay the premium. You have the facility to pay it either monthly, quarterly, semi-annually, or annually according to your financial condition.