For most of us, what we leave behind is very important. This is especially important when it comes to our families. Life could be uncertain and if you ever, unfortunately, have to leave them behind, you should be able to make sure they live a comfortable life. A life or term insurance policy could help you ensure this.
When it comes to life cover, a lot of people could get confused between a life insurance policy and a term life insurance policy. It’s vital here to understand what both are and choose the plan that is right for you and your family. To understand that, let’s understand what they are first.
What is a life insurance policy?
A life insurance policy gives you a life cover. It is an agreement between the insurer and the insured that the beneficiaries, which are most often the family members, will get financial help if the insured passes away during the term of the insurance. This financial help is meant to protect your family financially, help them pay your debts off, and help them live a comfortable life.
If the policyholder survives the policy period, the insured sum is paid back.
What is a term life insurance policy?
Life insurance policies come in different shapes and forms, and a term life insurance is a type of life insurance policy with a higher insured sum.
As the name suggests, there will be a term within which the beneficiary will get death benefits.
The major difference here Is that, when the term ends, unlike in a traditional life insurance, the policy lapses. That means, the beneficiary is only paid if the insured, unfortunately, passes away.
But before you decide on one quickly, life insurance and term insurance are different and useful in different ways and understanding the nuances completely is critical. Let’s look at some of the key differences and features of life insurance and term insurance. –
- Maturity– Like said above, a life insurance policy matures in two occurrences
- When the policyholder passes away
- When the insurance term ends
In both instances, the insurance company pays the insured sum.
At the same time, in a term insurance policy, the beneficiary receives money only in the case of the demise of the policyholder.
- Insured sum – If you think a life insurance is the obvious choice looking at the maturity advantage, think again, because a term life insurance could give you a much higher insured sum with a less premium.
This is because a term insurance is in no way an investment and the insurance company are banking solely on the risk associated with the plan.
Since the insurance company is not liable to pay unless there is a demise, the premiums also tend to be lower. In fact, term insurance is said to be the insurance plan with the lowest premium.
- Savings – One major advantage life insurance plans have over term plans is the fact that a life insurance is a savings plan as well. Your premiums accrue a fixed return over time and by maturity, you will get the maturity benefits. Whereas in term insurance , the premiums paid will not be refunded unless appropriate riders or add-ons are added.
- Flexibility – Term insurance, since the risk for the insurer is lower, tend to give you a little bit more flexibility, especially when it comes to surrendering. In the case of an insurance policy, surrendering means to withdraw from the policy.
In life insurance, withdrawing could block the higher premiums you paid, depending on the terms of your insurer. In most cases, the insurer won’t pay you the returns if you withdraw. But they might refund you the premiums you paid after deducting some charges.
In term insurance, there will be no refund, but premium amounts tend to be much lower. Hence, surrendering is a straightforward and easy process.
How to choose between life insurance and term insurance?
A choice between these comes to your preferences. If you are looking for affordability or higher sums, term insurance could be a better fit for you. At the same time, if a higher premium amount is not a problem for you and you want to build savings as well, life insurance could be the right choice.
An expert insurance advisory is a sure-shot way you choose the right option. Most insurers provide advisory online these days. Get advisory and get insured today!