Permanent life Insurance or Term life insurance

The term ‘Permanent life insurance’ is self-explanatory. It evidently means that such life insurance policies cover the insured throughout his/her life, or as in the case of certain plans, cover him/her for the chosen policy tenure i.e. up to the age of 100 years. It offers the dual feature of Death Benefit and Maturity Benefit. The Death Benefit is payable to the policy’s beneficiary on the death of the policyholder, while maturity benefit is paid to the insured on the policy reaching its maturity. Now, let’s take a closer look at the different types of permanent life insurance policies and the fine line of differences between them.

Permanent Life Insurance

Let’s take a look at some of the types of permanent life insurance policies.

Whole Life Insurance

As the name mentions, this permanent life insurance policy offers permanent life protection or till age 100, which implies to coverage throughout the lives of the insured till death. Hence, there is no fixed policy tenure. Most of such life insurance policies offer a dividend to the policyholder. Whole life insurance offers a savings component over and above the insurance coverage of the basic insurance plan. The additional benefits of whole life insurance explain why these policies quote a higher premium than term insurance policies.

Not just that, there are further additional benefits that a policyholder is eligible for against this permanent life insurance - cash value and tax exemptions. This plan offers the policyholder the flexibility of receiving loans, along with survival benefit (if any). After the demise of the policyholder, the death benefit gets paid to the chosen beneficiary.

Whole life insurance can be further classified into the following categories:

• Regular whole life insurance: This type of policy covers the insured till his/her death on consistent payment of premiums. The sum assured is payable to the beneficiary after the insured’s death.

• Limited Payment Whole Life Insurance: For this type of permanent life insurance plan, the premiums are payable for a comparatively shorter period of time. Under this policy, the premiums payable depend on the payment tenure opted by the policyholder. However, the insured will be covered throughout his/her life.

Endowment Policy

Looking for a life insurance where you can exercise the flexibility to choose the tenure as per your unique insurance needs? Here’s another option for you. This life insurance offers the beneficiary the sum assured along with the accrued bonus as Death Benefit on the policyholder’s demise. In case the policyholder survives through the policy tenure, the insured receives the sum assured and bonus, if any, as maturity benefit on the completion of the policy term. These policies are comparatively less expensive than whole life insurance policies. These policies can further be classified into two categories – endowment with profit, and endowment without profit.

Term Insurance

In sharp contrast to permanent life insurance, term insurance plans are usually designed to offer only Death Benefit feature. However, in case the policyholder survives through the policy term, the policyholder or beneficiary would not be eligible for Maturity Benefit. Most term plans do not offer Maturity or Survival Benefit, very few do, which are known as Term with Return of Premium Plans. Term plans are available at comparatively lower premiums than other life insurance policies. The premium will be determined by various parameters like your age, gender, tenure, preferred sum assured, premium payment frequency, etc.

Some term plans offer the convenience of increasing the sum assured at various life stages like marriage or birth of children. Hence, it is essential that you have a clear understanding of the benefits offered with every term insurance plan and read the policy document thoroughly before signing on the dotted line.

So, which life insurance policy is better – permanent life insurance or term insurance?

There is no particular policy that can be termed as the ‘best’. There are several parameters that a policyholder has to consider to select a life insurance policy that is the best fit for his/her unique insurance needs. Take a sample scenario – You go shopping for clothes with your friend. Several thoughts will cross your mind while you browse through the collection, wouldn’t they? You will consider the purpose, material, fit, designs and colour, etc., not to mention the size. Your friend and you might end up picking the same attire, but it may differ in size or some other criteria.

Similarly, not everyone’s objectives for buying a life insurance are the same. While Plan A might be the best suited for Mr. X, Plan B may be what Mr. Y is looking out for from a life insurance policy. Hence, the only way you can know which one of these life insurance plans is the better is to settle with the one that meets your insurance needs.