In today's modern era, it is essential to have an insurance coverage to dispense with all sorts of contingencies in life. Due to the proliferating requirement for life insurance plans in current times, there is an overabundance of insurance products in the current market.
However, picking the appropriate insurance policy according to your suitability relies on several determinants. Before moving ahead with it, things like your age, period of the policy, the number of dependents you have, the amount of insurance coverage you need should be considered.
Difference Between Term Insurance and Life Insurance
Having an insurance plan is the basis of sound fiscal planning. Hence, performing a little bit of research before making the ultimate decision will help choose the appropriate insurance policy. When talking about insurance in present times, term insurance and life insurance are the two most comprehensive and prevailing insurance policies.
While term insurance provides comprehensive coverage till a specific term, a life insurance policy offers lifelong coverage to the policyholders. While both these plans have their own set of benefits and limitations, it is essential to understand the basic nature of these policies.
Understanding the fundamental difference between them will ensure that you always make a prudent investment decision to secure your financial future. Hence, to assist you, we have outlined the difference between term insurance and life insurance on certain parameters.
1. Mortality Benefits
The biggest benefit of a term insurance policy is that the benefit amount (sum assured) is paid out to the nominee in case of death of the person insured during the policy term.
A life insurance plan has after death and plan maturity benefits for the policyholder. The sum granted as the mortality benefit in term insurance policies is considerably higher when compared to the maturity advantage granted by life insurance plans.
Even though numerous insurance buyers contemplate investing in life insurance plans to attain the twin advantage of life security and great returns on their investment, it is prudent to hold at least one term insurance policy. It presents a more substantial mortality benefit in a limited amount of insurance premium.
Understand what are mortality charges in ULIP.
Another important parameter of distinction between term insurance and life insurance policy is the flexibility of both these policies. Surrendering a term insurance plan is much easier when compared to giving up a life insurance plan.
In a term insurance policy, if a person insured stops paying for the premium of the insurance premium, the advantages of the term policy stop and the plan gets lapsed. On the contrary, in life insurance plans, the maturity advantage to the person insured is granted exclusively if the insured person concludes the complete span of the policy.
Suppose the policyholder gives up on the life insurance policy or closes the policy midway. In that case, they will not be entitled to reclaim the complete saving part of the plan as the policy provider will make some deductions as a penalty before providing you with the accumulated sum.
Hence, it won't be wrong to compare both these policies based on flexibility. Term policies weigh more and have better advantages. Furthermore, numerous term insurance policies are renewable and grant an alternative to transform this term plan into an endowment policy for the equivalent amount ensured with an expansion in the premium amount.
3. Premium Sum
Even though a life insurance policy presents a wider array of advantages, if a person requires higher policy coverage under a life insurance plan, they will be required to spend a higher insurance premium amount. Consequently, because of this high sum of premium, numerous insurance users fail to receive adequate coverage.
Furthermore, life insurance plans usually extend a moderate return on investment that ranges 5% to 7%, which decreases when the life insurance policy is surrendered.
On the other hand, term insurance policies are much more affordable than life insurance and render higher insurance coverage at a minimum expense. The main reason behind this reduced amount of premium for a term insurance plan is because a term plan covers the risk of early deaths.
4. Surrender and paid-up value
When it comes to term insurance policies, there is no surrender or paid-up value. If the policyholder stops paying the amount of set premium, the term policy will terminate, and the person cannot recover it once lapsed or terminated. And when the term plan gets terminated, the policyholder would not obtain anything even if they have paid previous premiums.
On the contrary, life insurance plans provide the person insured with some advantages even if premiums are delayed or discontinued. If the policyholder has made the payment for certain instalments of a life insurance policy and then discontinues the payment, then the policy will be regarded as paid-up.
Under a paid-up life insurance policy, the sum guaranteed would be subdued; however, the policy would proceed. One can further optionally cancel the life insurance policy by surrendering it, and when a person surrenders this policy, they will be entitled to receive a surrender value.
All the modern age investors need to comprehend that opting for a good insurance policy plays a pivotal role in saving funds for a secured future. Hence, one must always opt for both term insurance and life insurance plans. While a term plan presents a great ROI and life security, a life insurance policy can safeguard your family's financial future.
If you are looking for a policy that have the advantages of both these policies, you can opt for iSelect Smart360 Term Plan by Canara HSBC Oriental Bank of Commerce that can offer you with comprehensive coverage at a minimum and flexible premium options. It offers return of premium. That means your premiums will be paid back if you outlive the policy term. Secure your future with the right life insurance plan and protect your loved ones.