When it comes to a life insurance policy, its most important purpose is to provide financial security to your family members if something happens to you. Unlike other financial products, such as fixed deposits, life insurance comes with a death benefit in case the policyholder dies prematurely. As a result, the death benefit received by the policy nominee will help pay for the family’s expenses and fulfil their future financial goals even if you are no longer around. However, for life insurance to achieve that objective, it is necessary for the sum assured to be adequate to offer comprehensive financial security. This is where term policy differs from a traditional life insurance.
What is a Term Insurance Plan?
A term policy is the most affordable form of life insurance product out there. These plans are designed in such a way that they promise to pay a death benefit only if the insured person passes within the policy term. Before you buy term insurance, you need to understand that there is no maturity benefit payable at the end of the policy tenure. That is the reason they are called pure life insurance.
Term Plans Versus Traditional Life Insurance
Term plans are a type of life insurance plan. They are quite similar to one another, and at the same time, they are also different. If you are wondering why buy term insurance, then you need to understand the similarities and differences between both products. But let’s talk about the similarities first.
- They both provide tax benefits on the premiums paid u/s 80C of the income tax act.
- The death benefit is tax exempted u/s 10 (10D)
- There is an option to get maturity benefits when you buy term insurance with return of premium
- You can buy both types of life insurance plans online
Benefits of Term Plans Over Conventional Life Insurance Plans
Other than the obvious price factor, many people prefer to buy term insurance over traditional life insurance due to its numerous other benefits. Let us discuss them in detail below:
- They are More Affordable
When you buy term insurance, your premiums are much lower than the other life insurance products. In fact, amongst all the other types, term plans are the cheapest. Thanks to its affordable premium options, even young investors are able to afford these policies and provide adequate financial protection to their loved ones.
Even with low premiums, you will be able to provide your family with sufficient financial security in your absence. Other traditional plans, on the other hand, are much pricier. In addition, early career investors often find standard life insurance plans unaffordable if they choose high sum assured. Therefore, they prefer to opt for a term plan instead.
- Expansive Coverage
Don’t be fooled by its low price tag. Despite the affordability, the term policy is able to provide you adequate coverage for a fraction of a price. As a general rule, your sum assured should always be at least 15-20 times your existing annual income. This amount is considered ideal because it accounts for inflation and is deemed sufficient to pay for your future financial goals. However, traditional life insurance will be too expensive to give you ample coverage. That is the reason you must buy term insurance instead.
- Give Complete Financial Security to Your Family
High coverage at low premiums is perhaps the single most defining factor separating term policy from a regular life insurance plan. While other plans may give annuities, money-back guarantees, or maturity benefits, a term plan gives you extensive coverage for affordable premiums. This allows you to cover your family’s every financial requirement without burning a hole in your pocket.
- Flexibility
If at any given time you want to surrender your life insurance, it is much easier to do that in case of a term policy. This is because in a term insurance plan, when you stop paying your premiums, your policy lapses. However, surrendering a life insurance policy will terminate the maturity benefit and only pay you a portion of the premiums paid after certain deductions. Additionally, term insurance can be renewed or converted to other life insurance products.
In a nutshell, it is advisable to buy term insurance if you have existing long-term liabilities, such as a home loan. It is also perfect for buyers looking for pure protection at a low cost for a specific period.
One of the most common mistakes investors make is looking for guaranteed returns when buying life insurance. As a result, they often overlook term insurance and all the benefits that come with it. However, experts recommend that you first buy term insurance as your primary instrument to protect your family’s financial security and then supplement your financial portfolio with other life insurance plans.