PLI vs Term Insurance

PLI brings life insurance with an option for saving within the plans, whereas term insurance is essentially a tool for financial protection. A good idea is to know what each type of policy covers to make your decision easier.

PLI vs Term Insurance: Which is Better?

PLI stands for Postal Life Insurance provided by India Post for eligible categories only. It is dependent upon different plan features, which may include life cover together with benefits like bonuses, lump sum maturity payment and loan facilities against the policy. Term insurance is pretty much a no-fuss type of life cover; you just select your preferred level of cover and the number of years you are willing to be financially insured, and pay the premium per your plan choice.

The main reason why PLI and term differences are important is that these two types of insurance policies were created for very different financial situations. So, here is a short comparison of PLI vs term insurance in your family needs:

Key Features and Benefits of PLI

Life Insurance Cover

If the policyholder passes away while the PLI policy is active, the nominee receives the benefit payable under the policy. For a family, this money can go towards everyday expenses, outstanding loans, children's education or any other financial requirement.

Maturity Benefits

Some PLI plans pay a maturity benefit when the policyholder survives the policy term. This is different from a regular term insurance policy, where surviving the policy period generally does not result in a maturity payout. For people who prefer their insurance policy to have a savings component as well, this can be an important reason to look at PLI.

Also read: PLI Maturity calculator

Bonus

Eligible PLI policies can earn bonuses. These bonuses are added to the policy benefits according to the applicable rules and declared rates. This is another reason PLI can appeal to people who prefer traditional life insurance products.

Loan Facility

Need money midway through the policy? Some PLI plans allow a loan against the policy once the required conditions have been met. This can be useful when an unexpected expense comes up, and you need funds without immediately giving up the policy.

Different Types of Plans

PLI isn't a single policy. There are different plans designed around different requirements. These include Whole Life Assurance, Endowment Assurance and Convertible Whole Life Assurance, among others. That gives eligible policyholders some choice in how they want their insurance to be structured. Someone looking for lifelong protection may have different requirements from someone who wants a maturity benefit after a particular period.

Who Should Prefer PLI?

PLI can be considered by someone who is eligible for it and likes the traditional insurance model of life cover combined with savings-related benefits. It can also appeal to people who value features such as maturity proceeds, bonuses and the availability of a loan against eligible policies. There is one point to check first, though: PLI is not available to everyone. Eligibility depends on the category of the individual and the rules applicable to the scheme.

Key Features and Benefits of Term Insurance

High Sum Assured

A term insurance policy can give them an option that is much more generous financially than if they went for a smaller cover. Someone with a home loan, two small children with routine family expenses can easily face the situation if the person goes into their financial death. So the family's insurance payment should be large enough to cover all the essential expenses and not just a small amount.

Lower Premium

Since a standard term plan focuses on life cover rather than building a maturity corpus, the premium can be comparatively affordable for the amount of protection offered. The premium isn't the same for everyone. Age, health, smoking status, lifestyle, occupation, policy term and sum assured can all affect what you pay. Buying early can also help in many cases because age is one of the factors insurers consider when pricing a policy.

Also read: Term Insurance calculator

Cover During Major Financial Responsibilities

Most people have their biggest financial commitments during their working years. There could be a home loan, children's education, dependent parents or other expenses that would continue even if the primary earner were no longer there. A term plan can be chosen to cover these years. Ideally, the policy term should match the period during which your family would need your income the most.

Flexible Policy Terms

Term insurance does not have to be an ongoing commitment throughout one's lifetime. The length of the coverage period is entirely determined by the policyholder plus what the insurance company offers.

Additional Riders

A term plan can also be supplemented with certain riders, depending on the insurer. These life insurance riders are for Accidental death, critical illness and disability-related.

Tax Benefits

Based on the Income Tax Act, eligible life insurance premiums that have been paid on time may result in the taxpayer qualifying for a reduction of taxes. As a general rule, policyholder and proceeds are two separate matters, the latter of which may be taxed independently.

Can You Have Both PLI and Term Insurance?

There is no rule that says you have to pick only one.

In fact, the two can serve different purposes. Suppose you already have a PLI policy and like its savings and maturity features, but the life cover isn't enough for your family's financial needs. You could consider a term insurance policy to add more protection.

For instance, a PLI policy might form part of your long-term savings, while a term plan provides a larger death benefit that your family can rely on if your income is lost. Of course, having two policies means paying two premiums. So, before adding another policy, check your existing cover and work out how much insurance you actually need.

PLI or Term Insurance: Which One Should You Take?

It all depends on what you expect from your life insurance. PLI may be worth considering if you are eligible and want a traditional policy that combines life cover with features such as savings, maturity benefits and bonuses. Term insurance is usually the simpler choice when the main objective is protecting your family's finances. If you have dependants, loans or a large amount of future expenses to account for, a high sum assured can give your family considerably more financial support. PLI can be used for savings-oriented needs while a term plan focuses on protection.

FAQs