Permanent Life Insurance or Term Life Insurance – Things you need to know

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It is often not easy to decide whether to opt for Permanent Life Insurance or Term Life Insurance. However, these choices are crucial and depend on the needs and requirement of the family. It is important to understand the difference between the two to make the right choice:

Permanent Life Insurance means that the insurance will provide cover throughout his or her life, meaning the policy holder, for the chosen policy tenure, for example, till the age of 100 years. Such a policy offers dual feature of both death benefit and maturity benefit. The death benefit is payable to the beneficiary of the policy after the death of the policy holder and the maturity benefit is paid after the maturity is reached to the insured person. There are various types of permanent life insurance policies:

Whole Life Insurance:

As the name suggests, this policy provides coverage throughout the lives of the insured till death or till 100 years, and there is no fixed policy tenure. Such life insurance policies offer a dividend to the policy holder and they offer a savings component over and above the insurance coverage of the basic insurance plan. The additional benefits are the reason why they also have higher premiums compared to other policies. Moreover, the policy holder can also get cash value and tax exemptions from this policy and it also offers the opportunity to get loan against the policy, along with survival benefit, if any. The death benefit is passed on to the beneficiary on the death of the policy holder.

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There is regular while life insurance, where the policy covers the insured till death or till the premiums are paid and the sum assured is paid to the beneficiary after death.

There is also the Limited Payment Whole life Insurance where the premiums are paid for a shorter period and the payout depends on the payment tenure for the policy holders. The insured will be covered throughout his or her life.

Endowment Policy:

The Endowment Policy is for those who are looking for flexibility to choose the tenure as well as cater to the different insurance needs. This policy offers the beneficiary the sum assured along with the accrued bonus as Death benefit on the demise of the policy holder. In case the policyholder survives the tenure, then he gets the sum assured and the bonus, if any, and also the maturity benefit on the completion of the policy term. These policy are less expensive than the whole life insurance policies and can be classified into two types as well- endowment with profit and endowment without profit- with the premiums of the former being slightly steeper than that of the latter.

Term Insurance:

In contrast to permanent life insurance, term insurance plans are meant to offer only death benefit. Hence, in case the policyholder survives the insurance term, the policyholder will not get any maturity benefit. Term insurance do not offer survival benefit and if they do, they are known as term with Return of Premium Plans and there are very few of them. However, the premiums are available at quite lower rates and they are determined by age, gender, tenure, preferred sum assured and other factors. Some term insurances can be so planned so that one can get the money during important life stages like for children’s higher education or marriage.

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Hence, one should only choose the policy depending on the needs of the family and the need of every family is different. Not everyone has the same objective or goal in life and choosing a policy just because a family friend bought it is not what you should be aiming for. Do your own research and consult your family members before you finally decide on a policy for yourself and your family.

Shailesh Kumar

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