Life is so uncertain that planning against these odds becomes very important. These uncertain events can disrupt the lifestyle and put financial as well as mental stress on individuals. Thus, it becomes important to invest in different financial instruments such as life insurance, health insurance, term insurance, and many more. All of these financial instruments are different from each other in terms of coverage, features, and more. So, it is important to understand the difference between the two popular insurance products, term life insurance, and traditional life insurance, and understand which is better.
What is Term Life Insurance?
A Term Life Insurance plan is one which offers death benefits to the nominees in case the policyholder of a term life insurance plan meets with an unfortunate death. However, it is important to note that there are no benefits offered in case the policyholder outlives the term life policy tenure. Moreover, based on the coverage offered, term life insurance plans can be of different types such as Level Term Insurance Plans, Return of Premium Term Plans, Increasing Term Plans, Decreasing Term Plans, Convertible Term Plans, and Term plans with riders.
What is Traditional Life Insurance?
Traditional Life Insurance, unlike a term life insurance plan, provides death benefits as well as maturity to the policyholders. This means that a lump sum amount is offered to the policyholder’s nominees in case the policyholder dies, and a maturity benefit is provided if the policyholder survives the policy term. The premium paid for keeping the traditional life insurance plans active can be used for getting life coverage as well as savings. There are different types of Traditional Life Insurance plans such as Whole Life Insurance, Endowment Plans, Child Plans, Money-back Plans, Unit Linked Insurance Plans or ULIP, Investment Plans, Pension Plans, and a few more.
Difference Between Term Life Insurance and Traditional Life Insurance
Listed below are the difference between Term Life Insurance and Traditional Life Insurance that you should know about:
| Point of Difference | Term Life Plan | Traditional Life Insurance Plan |
| Death Benefit | Term life plans offer death benefits which are comparatively greater than that offered in Traditional Life Insurance plans | Traditional Life Insurance Plans also offer death benefits in case the policyholder dies |
| Maturity Benefit | There is no maturity benefit offered in term life insurance plans | Maturity benefits are offered under traditional life insurance plans in case the policyholder outlives the policy term |
| Flexibility | When you buy a term life plan, it is to surrender your policy and get it converted to other plans on paying additional premiums | With Traditional Life Insurance Plans, if you plan to surrender the plan, then the policy benefits are lost |
| Premium Amount | The premium for term plans are comparatively lower than traditional life insurance plans | The premium for traditional life insurance plans are higher |
| Loan Availibility | Term life plans do not provide the option of acting as loan collaterals as there are no benefits attached with this plan, apart from death benefits | With life insurance plans, you can easily get loans |
| Paid-up value | No paid-up value is accumulated with term life insurance plans | Paid-up value is accumulated with traditional life insurance plans |
Term Life or Traditional Life Insurance: Which is Better?
Now, wondering whether to opt for term life or traditional life insurance plans. The choice between a term life insurance plan and traditional life insurance totally depends on you. So, while choosing between a term life plan and a traditional life insurance plan, you should keep certain factors in mind such as the requirement of your dependants, age, health condition, and others. For example, if you are diagnosed with a critical illness, it makes sense to buy a term life insurance plan as the life expectancy here is low. On the other hand, if an individual is planning to do both savings as well as invest, then it is advisable to buy traditional life insurance plans such as whole life insurance plans. So, the choice is totally yours regarding which plan to choose. It is a better idea to speak to a financial advisor for buying a suitable plan.
Take Away
So, now that you know the differences between a term life plan and a traditional life insurance plan, it must have become easier for you to select a desired plan. You can also contact us to know more about term life plans and traditional life insurance plans and accordingly plan which one to buy.