Difference between term insurance and traditional life insurance plans

Insurance is one of the most neglected financial products. Not only millennials but also the older population often put off insurance to a later stage in life, whereas the benefit lies in starting early. While there are a plethora of plans to choose from, selecting the right plan depends on your requirement. The premium to your policy is greatly influenced by your age, along with other factors like tenure, the number of dependents, and the coverage of your plan.

What is traditional insurance?

Traditional insurance has your life covered along with maturity benefits. It not only has death benefits but also returns the policyholder a maturity amount at the end of the policy tenure. People with lower risk appetite prefer to invest in a traditional plan. It is a hybrid instrument of investment and financial safety.

While a few people may suggest that the premiums are on the higher side under a traditional plan, term insurance policy is that which offers similar benefits at a lower premium.

What is term insurance?

A term insurance policy offers coverage for a specific duration until the policy is in force. In case the insured dies during this period, death benefits are paid to its nominees. Term life insurance is less expensive when compared to traditional insurance, as it does not have any cash value. The death benefit is the only value that is guaranteed under a term plan.

Let us look at the difference between traditional and term insurance policy –

Death benefit

A prominent difference between the two plans is that term insurance policy provides only death benefits in case of demise during the policy tenure. Whereas, maturity, as well as death benefits, are available under a traditional policy. While one may point at the dual benefits in case of a traditional plan, the death benefit in case of term policy is much higher than the maturity benefits in a traditional plan. So it is advisable to have a term plan in your insurance portfolio.

Risk coverage

Death benefits are available under term life insurance, but there are no survival benefits like a traditional insurance cover. So if you want to cover the contingency of death, opting for a term insurance plan is a better alternative. Since the coverage is limited under a term insurance policy, the premiums are also reasonably priced. However, if you have corpus creation as your objective, you can opt for a traditional plan.

Premiums charged

Availing a term plan has the benefit of higher coverage at a minimal cost. As the traditional plans have maturity benefits, the premiums charged on such products are higher. Moreover, the returns on such traditional policies are lower than pure investment-based products. These returns are further reduced due to administration costs involved. Thus if you want to secure your family’s future in your absence at an affordable cost, term life insurance is the way to go ahead. In case you do not have an adequate income to pay heft insurance premiums, a term plan offers complete financial protection to your dependents.

Flexible payout

A term policy comes with different payout options. On the demise of the insured during the policy tenure, your family can opt for a lump sum payout or monthly payout. Moreover, they can even choose to receive a partial amount. Managing day to day expenses can be easier for your family in your absence.

Simplicity

Term insurance is a straightforward insurance product that can be easy for first-time insurance buyers too. The premium you pay is the cost to avail of your insurance cover. In addition to that, the coverage is valid for a predefined tenure. One does not need to worry about any investment linked to your insurance policy.

To conclude, purchasing term insurance is the most affordable insurance cover that you can opt for. You can also combine your term policy with add-on riders for broader coverage. On the contrary, combining both the plans can be ideal in case you have a family to support. The traditional policies offer maturity benefits which can be enjoyed if you outlive the policy tenure, and a term plan can ensure protection in your absence.