There are several types of life insurance available nowadays. One of the most popular ones is term insurance. It is a type of pure life insurance with no savings or investment benefits to it. It provides a life cover to the policyholder for a fixed duration. The reason behind the popularity of term plans is that they offer a huge life cover for significantly less amount of premium. When compared to traditional life insurance, their premiums are significantly low.
If you are planning to buy life insurance and are confused between traditional and term insurance, read further. This article reflects the difference between the benefits of life insurance and term insurance:
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Death benefit
When you buy life insurance of any kind, the purpose behind it is to leave sufficient funds for your loved ones in your absence. This ensures that, in case of your unfortunate demise, your family will not face any financial turmoil. People opt for a death benefit by taking into consideration the needs of their family along with their long-term goals. Also, it is essential that the policyholder takes their liabilities into consideration, if any, ensuring that in their absence, their loved ones do not find it difficult to repay their debt. One of the term insurance benefits is that it offers huge death benefits for low premiums. Traditional insurance usually requires you to pay a hefty premium for a huge death benefit. The huge coverage that one can get by paying a minimum premium has led to the increase in term insurance’s popularity. This is because the amount of death benefit is one of the key factors taken into consideration while buying life insurance.
Time period
Term insurance, as the name mentioned, is for a fixed duration of time. Traditional insurance plans such as whole life insurance plans are applicable usually until the policyholder reaches 100 years of age. When you buy term insurance, you decide the number of years that you would want a life cover for. Individuals who buy term insurance take an estimate of the number of years they would have dependents for whom they are financially responsible. Also, they take into consideration the approximate time they will need to repay any debt or loans they may have. This ensures that any of their liabilities do not burden their loved ones. One of the term insurance benefits is that the earlier you buy, the minimum your premium is likely to be.
Premium amount
If an individual wants life coverage under traditional life insurance, they would have to pay a higher premium. Because of these high premiums, individuals who buy traditional plans cannot opt for sufficient coverage. Even the ones that offer returns have reduced their returns over the years when the policy matures. Also, charges like administration costs are deducted from the returns received. Whereas, term insurance is known for its affordability. They easily offer huge sum coverages for lower premiums. This allows policyholders to get sufficient coverage without having to pay hefty premiums. Affordable premiums are one of the main reasons people buy one. Also, having to pay low premiums leaves room for policyholders to invest in other instruments and generate wealth.
Simplicity and flexibility
If you buy a traditional life insurance policy with maturity benefits, surrendering it might be a challenge. You receive the maturity benefits of life insurance only if you complete the entire tenure of the policy. If you surrender it before maturity, you may end up losing the entire savings portion, as the company only pays back premiums, that too after several deductions. With term insurance, things are much simpler and flexible. If for any reason you want to surrender your term plan, you can do the same with the click of a button. Once you stop paying the premiums for term insurance, the policy lapses and so do its benefits.
There is no obvious choice while choosing between traditional life insurance and term insurance. Both have their distinct benefits and features. Term insurance is usually a popular choice since they offer sufficient coverage at an affordable premium.
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