Term Insurance vs Traditional Life Insurance
Before diving into the topic let us understand the basic definition of term insurance and traditional life insurance definition. Life insurance is a contract between the Insured (Policyholder) and the Insurer (Insurance Company) in which the insured agrees to pay at specified intervals of time for which the insurer agrees to pay a designated sum of amount to the family of the insured upon the death of the insured.
Term insurance is a form of life insurance in which the insured is provided with life insurance cover against death for a certain term (period of time). This term can range from 5 years to 81 years depending on the entry age of the insured and the type of policy.
In short term insurance can be understood as a policy in which the insured pays a premium for a particular term chosen by him/her and in case of death of the policyholder the
claim proceedings are paid to his/her immediate family. Term insurance policy online can be taken from Policy Bachat where there the term insurance comparison in India can be made among different plans and term insurance quotes can be obtained.
Traditional life insurance policy is also known as whole life insurance, money back insurance, or endowment insurance. This type of life insurance policy provides multiple benefits like risk cover, fixed income returns, safety, and tax benefits. The traditional life insurance policy also provides insurance coverage to the policyholder for his/her entire life. In case of the unfortunate death of the insured, the insurance payout is made to the policy's beneficiaries.
Mr. Gupta, aged 30 years and earning 20 Lac per annum was very much interested in the investment of his money. He had a diverse portfolio which included Mutual Funds, Real estate, Retirement funds, etc. When it came to life insurance he had invested in an Endowment policy thinking that it’ll solve his insurance needs. He was paying a premium of Rs.36, 789/- each year for a period of 20 years having a sum assured of 20 Lacs. He was confident of the bonus in addition to the guaranteed corpus of Rs. 20lacs on his death.
Mr. Gupta has invested in an endowment plan which, he believed, was sufficient enough to provide good insurance cover and also yield good returns over a period of time.
Was he right in his decision? Sadly, No. Can you guess why?
Insufficient financial security for a family:
Though Mr. Gupta has invested in life insurance it doesn’t solve the purpose of taking a life insurance cover. One important aspect to consider here is the financial security for the family in case of your demise. Below are the questions which need to be addressed properly before deciding on life insurance.
- What if Mr. Gupta unexpectedly expires tomorrow? Will his endowment policy provide sufficient financial security to his family?
- In today’s world, a middle-class family needs at least Rs.10 Lac per year to survive. With the 20Lac claim amount, his family would be able to survive only for 2 years.
- How will his family manage after his demise without proper financial security?
Life Insurance = Financial Security for family
Here comes the real meaning of life insurance; life insurance is a means of the financial security provided to the family in case of the death of the policyholder.
Term Insurance for Mr. Gupta:
Assuming the above example where Mr. Gupta was around 30 years of age with an annual income of Rs 20 Lacs, he is eligible for at least 15 times coverage of his annual income which comes to around Rs. 3 Crore for which he would be paying a nominal premium of Rs. 30,000 per year for a period of the same 20 years.
In term insurance policy the claim is payable only on the death of the policyholder and no bonus is accrued at the end of the policy period. That is if a customer survives the policy term no amount is paid to him/her as a survival benefit, but if the customer expires unfortunately within the policy period, a designated amount (Sum Assured) will be paid to his family. The term insurance GST rate is 18% which includes the state and central tax.
If Mr. Gupta is to die tomorrow his family will be receiving the Sum Assured of Rs. 3 Crore which helps them settle financially. This is the advantage of taking a term insurance policy online over other traditional life insurance policies.
“Pure Term insurance only provides a death benefit.”
But these days’ term insurance products are also available with return of
premium options where the customer can pay a higher premium and opt for this option. This option enables the customer to get back his premiums paid at the end of the policy term. But the catch here is that there would be a deduction of premium for life insurance coverage.
PolicyBachat is an insurance web aggregator where term plan comparison can be done using the term insurance premium calculator and the best term insurance plan can be selected depending on your premium paying capacity and your needs. Compare advantages & disadvantages of term insurance over other traditional life insurance products and term life insurance importance in PolicyBachat to get the best term plan.