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. The objective of both is the same, to provide financial security to the family after the death of the insured. However, there is considerable variation 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 affordable life insurance option that provides risk-only coverage. If the insured dies during the policy period, the nominee receives a fixed amount. However, if the policy term is completed and the insured survives, no money is given back.
Benefits of term insurance:
Term plans provide higher insurance amount at lower premium. 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 offer more coverage at a lower cost.
Disadvantages of term insurance
If you survive the policy period, 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, provides both insurance and investment. In these, along with death benefit, maturity benefit is also available on completion of the policy period.
Benefits of life insurance
The entire amount is returned as long as the policy holder survives, making it both insurance and savings. The money deposited in these plans creates cash value, which can be withdrawn during the policy period. These schemes get tax exemption under Section 80C of the Income Tax Act. Apart from this, loan can also be taken by pledging the cash value.
Disadvantages of life insurance
These cost more than term insurance. For example, a premium of ₹1,000 for a coverage of ₹1 crore, whereas traditional plans provide coverage of only ₹10-20 lakh. From an investment point of view, the returns on these schemes are low and 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 a dependent family, and want to cover financial obligations like a home loan.
Want to focus only on risk coverage without maturity benefits.
Reasons to choose life insurance
You can afford a higher premium and want savings with insurance.
You are interested in long-term financial security and maturity benefits.
You want the tax benefits and convenience of withdrawing cash values.
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