Choosing the right type of life insurance can be overwhelming, especially if you’re new to the insurance world. With various options available, it’s crucial to understand the differences between them. This article compares permanent life insurance and term insurance, enabling you to make an informed choice.
What is Permanent Life Insurance?
Permanent life insurance offers financial coverage for your entire lifetime. Such life insurance plans consist of death benefits and accumulation of cash. However, you must keep paying the premium regularly to enjoy the permanent life insurance coverage. It guarantees your family the payout of the sum assured, irrespective of when you pass away.
Ready for a challenge? Click here to take our quiz and show off your knowledge!
What is Term Life Insurance?
Term insurance is the purest and simplest form of life insurance plan and offers financial protection for your loved ones for a specified period. You must pay premiums regularly so your family can receive financial coverage after your demise within the policy tenure. In addition, term insurance plans enable you to receive extensive financial coverage at an affordable premium rate.
Comparison of Permanent Life Insurance and Term Insurance
The following table draws a comparison between permanent life insurance and term insurance plans:
Purpose: Permanent life insurance plans provide financial security and investment opportunities. They are ideal if you plan to protect your family’s financial well-being while building savings and investments for their long-term financial objectives. On the other hand, term life insurance is a full protection plan that offers financial coverage to your family members after your sudden demise. If you are looking for a plan to take care of your loved ones in case of your absence, term insurance is ideal.
Ready for a challenge? Click here to take our quiz and show off your knowledge!
Coverage: Permanent insurance offers coverage for your whole life. In contrast, term insurance offers coverage for your selected term.
Premium Cost: The premium cost of a permanent life insurance plan is comparatively higher than that of term insurance plans. This is because permanent life insurance offers investment and protection benefits.
Death Benefits: With permanent insurance, the insurance company pays the death benefit to your family after your death. With term insurance, your family member will receive the death benefits if you pass away within the policy term.
Maturity Benefits: Permanent insurance offers a lump sum payout after the policy matures, whereas term insurance does not offer maturity benefits as it provides coverage for a specific period.
Tax Benefits: Both permanent and term insurance allow you to avail yourself of tax benefits for premiums paid and benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
How to Choose Between Permanent Life Insurance and Term Insurance?
Considering the following factors for selecting between permanent life insurance and term insurance:
1. Assess Your Requirements
The first step toward selecting the best life insurance policy is to plan your life insurance needs. You can check your current insurance and dependents’ needs to assess your requirements.
2. Determine the Policy Tenure
Determine the required coverage amount and term on the basis of your insurance requirements and financial obligations to choose between permanent and term insurance.
3. Evaluate the Budget
You can evaluate the premium rates offered by different insurers. This will assist you in choosing the most suitable life insurance plan based on your budget and expectations.
4. Research About the Insurer
When searching for the ideal life insurance plan, it is essential to conduct thorough research to select the right insurer, considering their claim settlement ratio.
5. Read the Fine Print
Before buying a life insurance policy, you have to go through the policy’s terms and conditions selected by you. You need to be aware of the inclusions and exclusions in your policy.
Final Words
Term and permanent life insurance have different objectives and cater to distinct financial requirements. Understanding the differences will help you choose the ideal plan according to insurance requirements and future financial goals. As life insurance is integral to a comprehensive financial plan, ensure your desired plan aligns with your financial goals.