Having a life insurance plan has become crucial as it helps secure a financial backup for our loved ones. But should you only get a life cover or the one with the savings option? Well, this completely depends on your insurance requirements. In order to help you determine which one of these is most suitable, we share details below for you to compare both types of life insurance policies on several aspects.
Life Insurance Plans with Life Cover
Insurance policies that offer just a life cover without a savings component to the policyholder are called as pure risk cover plans. Term plan is such a policy that enables you to financially safeguard your family in your absence. However, if you outlive the insurance plan, there is no maturity benefit available under the term policy. But you can enjoy a survival benefit with a Return of Premium Plan (TROP), which is similar to a term policy. On outlasting the policy tenure, all the premiums payment made during the term are paid back as a survival benefit.
Life Insurance Plans with Life Cover Plus Savings
Apart from term plans, various life insurance policies promote savings along with a risk cover. So, in the event of an unfortunate mishap, a lump sum death benefit would be paid out to your loved ones. But if you were to survive the policy term, the insurance provider shall offer you a maturity benefit to meet your life goals. Some popular types of life insurance policies are:
- Endowment plan
- Whole life insurance
- Money-back policy
- Unit-Linked Insurance Plan (ULIP)
Comparing Life Cover Vs Life Cover with Savings
Compare both types of insurance based on some key aspects to help you decide which plan is best for you:
- Sum Assured Amount
When it comes to term plans, the death benefit that you can avail is much higher in comparison to other life insurance plans. As it’s a risk cover, you can choose a high sum assured for a cost-effective premium. But that isn’t the case of life insurance plans like endowment or whole life insurance, as some part of the premium goes towards securing a maturity benefit. Therefore, based on your needs, the type of policy that shall suit you can vary.
- Risk Cover Vs Savings
Term plans provide you with a risk cover from any untoward incidents but there is no maturity benefit available. However, with life insurance plans, you can reap the benefit of both death and maturity payouts. Thus, the savings component enables you to fulfil future goals in case you survive the policy tenure.
- Flexibility
In terms of flexibility, term policies offer you none, as it’s a pure risk cover. But in life insurance, as the policy has a cash value, you can surrender the plan if you do not require insurance anymore. In the event of a financial emergency, you can avail a loan against the policy without much hassle.
- Tax Benefit
Both term plan and life insurance policies have tax benefits on the premium paid and the death benefit. However, plans with a savings component also enable you to claim the maturity benefit as tax-free under Section 10(10D) of the Income Tax Act.
With the above-mentioned comparative view, you can now decide on the insurance policy that suits your requirements. It is recommended to first understand the purpose of buying insurance to get the right plan. If you want to financially secure your family with a lump sum amount, pure risk cover is for you. However, if creating wealth is also an end goal, then life insurance with a savings component is best.
