There are several types of insurance policies floating around in the market today. From whole life, universal, permanent life, simplified issue, variable universal, and guaranteed issue, to cash value policy, insurance salesmen are going to sell for you a variety of insurance policy terms and choosing the best option might be a challenge.
Here is the truth to help you make a quick decision: most of the life insurance policies are just ordinary term insurance policy bundled with something catchy, usually an investment with unverified value.
What is term insurance?
For starters, a term life insurance policy covers a certain number of years like 30 years. Once you sign the agreement, you will pay the insurance company premiums on a regular basis. In case you die before the end of the specified term and your premiums build up, your beneficiary is paid the value of the policy. However, if the term ends and you are still alive, you and the insurance company walk away.
Is term insurance better than other life policies?
Before answering the question, let’s first highlight some of the similarities between term insurance policy and other life insurance plans:
- The death benefit received under term and other life insurance policies are tax-free, but subject to certain conditions.
- Term insurance gives tax benefits on the premiums paid just like other life insurance policies.
- There are premium term plans that promise maturity benefits
- It is possible to buy term plans online
Differences between term insurance and other life policies
- Premiums: Term plans tend to have low premiums, which allow you to easily afford the maximum sum assured. This ensures that you have sufficient financial security for your family and loved ones in your absence. On the flip side, other life insurance plans like endowment policies come with high premiums. This implies that you can be disadvantaged if you choose a higher sum assured.
- Coverage: Because of the big difference in premium rates, it is a bit difficult to afford a high coverage under other conventional life policies. Experts advise that you should take a maximum life insurance that’s 10 times your annual income or which is sufficient to cater to your future life expenses after you’ve accounted for inflation. It is only term plans that can give you such kind of coverage without burning a hole in your pocket.
- Future Financial security: You can only get a completely secure financial future if you opt for high coverages at affordable premiums. While the traditional insurance life plans will give you guaranteed returns, lifelong annuities, and periodic money back benefits, it is only term insurance plans that provide the option of getting large sum assured affordably. This can go a long way in giving your beneficiaries a complete sense of financial security at a low cost.
Bottom-line
Many people buy a wide range of life insurance plans which promise guaranteed benefits but overlook term insurance plans. The next time you are shopping for life insurance, you should give term plans a priority—particularly now that you are familiar with its benefits. You should only go for other plans after you’ve taken a term plan with a good sum assured.
