A life insurance plan is a must-have for people with dependents. Many Indians lose their life to road accidents and several other causes. In such a scenario, choosing the right life insurance plan is of paramount importance. The life insurers offer a variety of life insurance products to meet the requirements of different sets of customers. The most basic life insurance policies are the term insurance plan and the traditional life insurance policy.
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Given below is a detailed comparison of the two:
Death Benefit: the major difference between term insurance and a traditional life insurance plan like Endowment life plans and Money-Back plans is that a term life plan offers a death benefit in case of demise of the policyholder within the policy tenure, whereas endowment life insurance offers death benefit along with accrued bonuses. Term life plans do not offer any maturity benefits, but do offer high death benefits. Term life plans have no survival benefits.
See Also: What is a Term Insurance Plan?
Endowment Life insurance offers mortality cover along with savings benefit at maturity. Therefore, most of the buyers consider endowment life insurance plan to be better than term life insurance. The truth is term life plans offer very high mortality cover, even though there are no investment/savings benefits. The mortality cover offered by endowment plans is really low, compared to term life plans.
Risk Coverage and Savings: A term life insurance plan offers a high death benefit to dependents in case of demise of the policyholder, within the tenure. In case the insured survives the policy term, there are no survival benefits, unlike endowment life insurance policies. Term life plans are pure protection plans. You avail life insurance for risk protection and term life plans fit the bill.
See Also: What is a Term Life Insurance Policy?
Premium Amount: A term life plan is very affordable, and a cost-effective way of securing family finances. This is low premium with high cover. One of the main drawbacks of endowment life plans is that even at high insurance premiums, the death benefit is not sufficient to cover your family on an untimely demise, and the rate of return is just 5% to 6%. The maturity proceeds also depend on various factors like timely payment of premium, reversionary bonus and so on. Therefore, a term life plan is great for people who do not have a stable job or a secure source of income.
Tax Benefit: Both the plans are eligible to receive tax benefits under Section 80C of the income tax act. Both the policies enjoy tax deductions of Rs 1.5 Lakhs a year under Section 80C. Death benefits under term life plans are tax-exempt.
A policyholder can opt for both the life insurance policies at the same time. However, it is better to make the right choice by evaluating your requirements. With the above points in mind, you are sure to make an informed choice that conveniently fits your budget.
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