When it comes to life insurance, there are many options like term plans, endowment plans, money-back plans, and more. All these plans provide life coverage, but the main difference lies in whether they offer only death benefits or both death and maturity benefits. Here’s a simple breakdown:
What is Term Insurance?
Term insurance is a “pure protection” plan. It provides financial support to your family in case of your death during the policy term. If you survive the term, there’s no payout. This type of plan is affordable because the premium only covers the death benefit. Variations include:
- Level Term: Coverage stays the same throughout the policy term.
- Increasing Term: Coverage increases over time.
- Decreasing Term: Coverage decreases as you get older.
- Return of Premium: Premiums are returned if you outlive the policy term.
- Convertible: Can be switched to another type of plan later on.
What is a Traditional Life Insurance Plan?
A traditional plan also provides life coverage but has an extra feature: it pays a maturity benefit if you survive the term. This means your beneficiaries get a lump sum if you pass away, but if you live through the policy period, you also receive a payout. Since it offers both death and maturity benefits, the premium is higher. The premium is partly invested to build a savings fund. Common types include:
- Endowment Plan: Offers both life cover and savings.
- Money-Back Plan: Pays a fixed sum at regular intervals during the policy term.
Choosing between term and traditional insurance depends on whether you want just life coverage or a combination of coverage and savings.
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