There are a plethora of options available in the market for life insurance. Among the primary choices are term life insurance and permanent life insurance.
While term insurance and permanent life insurance are similar, they serve different purposes. Term insurance provides financial coverage for a specific period, typically between 10 and 30 years. During this time frame, if something unfortunate happens to the insured individual, the policy pays out a death benefit to the designated beneficiaries.
Conversely, permanent life insurance does not have an expiration date in most cases. Unlike term policies, which have a defined term, permanent life insurance remains in force until the insured individual reaches a certain age, often 99, or until death, whichever comes first.
Choosing between term insurance and permanent life insurance requires carefully evaluating your current financial situation, long-term goals and risk tolerance. Find out more about both plans to select the more suitable plan for your requirements.
Term: Term insurance offers flexibility in choosing the duration of coverage, catering to individual needs, with the policy tenures typically ranging from 10 to 30 years.
Affordability: Term insurance is known for its affordability, as it provides pure protection without any maturity benefits. The absence of cash value accumulation helps keep premiums low.
Riders: Term insurance policies often come with optional riders to enhance coverage with benefits, such as critical illness, permanent disability, accidental death and terminal illness. These provide comprehensive protection against various risks.
No cash value: Unlike permanent life insurance, term insurance plans do not have a cash value that accumulates over time. These plans are designed to provide straightforward protection for a specified period without any built-in savings or investment components. However, there are variants like the return of premium plans, which refund the total premium paid at the end of the term if no claim is made.
Bonus or additions: Term plans do not offer any bonuses or other kinds of additional benefits on top of the death benefit. In case of the insured’s absence, the basic sum assured is paid to the nominee of the plan.
Tax benefits: Premiums paid towards term insurance and benefits received are eligible for tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Types: Term insurance comes in various types to cater to different needs, including basic term insurance, increasing term insurance, decreasing term insurance and return of premium term insurance.
Longer term: Permanent life insurance offers coverage for the insured's entire lifetime, with no predefined term limits. It ensures lifelong protection and eliminates concerns about outliving the policy term.
Riders: Similar to term insurance, permanent life insurance policies often include riders such as critical illness, permanent disability, accidental death and terminal illness for providing additional benefits to policyholders.
Cash value: Permanent life insurance policies may have a cash value that accumulates over time, depending on the type of plan chosen. These policies often include investment or savings components that offer financial flexibility and potential for wealth accumulation.
Bonus and other additions: Permanent life insurance plans may offer various kinds of bonuses or other kinds of additional benefits. These additional benefits may include bonuses linked to the performance of the plan’s investment portfolio. Permanent life insurance policies may also offer loyalty additions as an incentive for investors to stay invested in the plan.
Tax benefits: Similar to term insurance, premiums paid towards permanent life insurance and the death benefits received from the plan qualify for a tax deduction under Section 80C and Section 10(10D) of The Income Tax Act, 1961.
Types: Permanent life insurance includes various types, such as endowment insurance plans, money-back insurance plans and whole life insurance plans, each catering to different financial objectives and risk profiles.
If you are looking for affordable coverage tailored to a specific period, a term insurance plan might be perfect for you. It is particularly beneficial for young families with children, individuals carrying substantial debts and couples.
With term insurance, you will have peace of mind knowing your family members are financially safeguarded during critical life stages like loan repayments, higher education expenses and more. Plus, the lower premiums make it accessible even if you are on a tight budget.
Who should buy a permanent life insurance plan?
If you are seeking lifelong protection and opportunities for value accumulation, a permanent life insurance plan may be the way to go. It is ideal for lifelong financial security and estate planning, as it ensures financial security for your beneficiaries beyond your lifetime.
Permanent life insurance also serves as a valuable tool for wealth transfer and can supplement your retirement savings, offering a reliable source of income during your golden years. With its cash value, you will have the flexibility to access funds for various purposes, making it a multifaceted and versatile option for long-term financial planning.
Conclusion
Choosing between term insurance and permanent life insurance requires careful consideration of your financial situation, long-term goals, family situation and risk tolerance. While term insurance offers affordable coverage tailored for a specific period, permanent life insurance provides financial protection for as long as you live. The latter may also offer opportunities for value accumulation.
Ultimately, the decision depends on your objectives. It is crucial to grasp the inclusions and exclusions of each plan type and its coverage to make a well-informed decision that suits your financial requirements and offers peace of mind for both you and your loved ones.
Take the time to explore both options thoroughly before making a decision, and consider using a permanent as well as term insurance calculator to understand how each of these plans will affect your budget in the long run. Consulting with a financial advisor to ensure you make the best choice for your future is also recommended.
Disclaimer: This content is part of a marketing initiative. No TNIE Group journalists were involved in the creation of this content.