What is the difference between a term and traditional life insurance policy?

There are several types of life insurance planssuch as term plans, endowment plans, money back plans, whole life plans, unit-linked plans, plans for children, etc. While all of these cover life, each one has variations that make them different from each other. However, the broader distinction is between pure protection (term) and savings or (traditional) benefit plans, depending on whether they pay only the death benefit or both the death and benefit. maturity benefit.

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).