Term versus traditional
What is temporary insurance?
This is pure protection life insurance because it only covers the risk of death. It offers a lump sum to beneficiaries in the event of the death of the insured. If you survive the policy term, you will not receive any maturity proceeds. The premium is usually low because it only goes toward generating the death benefit. Common variants of term plans are level (same coverage throughout the term), increasing (coverage increases over time), decreasing (coverage reduces with age), return of premium (premiums returned if the policyholder survives the term) and convertibles (changes to another plan).
What is a traditional plan?
A traditional plan also covers the risk of death and offers a lump sum to the beneficiaries, but differs from the term plan in that it also offers income at maturity to the beneficiaries or the insured if he survives the term. The premium is much higher as it needs to generate both death and maturity benefits. To build a larger corpus, a portion of the premium goes towards the death benefit and the rest is invested in financial instruments. Common variants are the endowment (life cover and savings) and cash back (fixed sum at specific intervals).
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