Guaranteed Return Life Insurance vs Term Life Insurance

Investing in life insurance safeguards the financial health of your loved ones when you’re not around anymore. However, when purchasing a life insurance policy, you often face a confusing choice– term life insurance or guaranteed return life insurance. 

At one end, you get pure protection of a significant sum at an affordable price, and the other guarantees you some return if you stay alive till its maturity. 

A trick to solving this puzzle is knowing everything about these two options– where we come to help so you can make an informed decision. 

Understanding Term Life Insurance

Term insurance is one of the most popular variants of life insurance. In this plan, the insurance company only promises to pay a predetermined sum if the policyholder dies during the insurance tenure. This is a pure protection plan solely focused on providing financial security to the beneficiaries in the event of the policyholder’s demise. The family will not be eligible for benefit payouts if the policyholder outlives the tenure. 

However, for term insurance, the ratio of the cover amount you get to the premium you pay is higher than the other variants that guarantee returns. This means you get a higher cover amount for the lower premium amount. 

Advantages of Term Life Insurance

The following advantages contribute towards the massive popularity of term life insurance:

1. Focused on Financial Protection 

Term life insurance plans focus on providing a safety net for your family and offering substantial coverage, often up to ₹2-2.5 crore, these plans ensure your family’s financial stability during your unexpected demise. 

2. Lower Premium 

A critical factor in the popularity of term life plans is their affordability. The premiums are relatively low compared to the high coverage amounts, often reaching the eight-digit mark. Some plans offer premiums as low as ₹500 per month, making them an accessible option for many. 

3. Flexibility 

Finally, the flexibility a term plan offers contributes to its popularity. By allowing you to select the coverage amount, coverage period and payment duration from 5 years to the time till plan covers you, these plans will enable you to make a call based on your specific needs. 

Understanding Guaranteed Return Life Insurance 

A guaranteed return life policy cleverly blends insurance and investments. Its life cover aspect safeguards your family’s finances in case of your death. However, if the policy matures without any claim, this plan also offers you a fixed return or market-based bonus amount. 

While it may cost more than a standard term life plan, it promises a substantial return at maturity.

Most Popular Guaranteed Return Life Insurance Plan Types:

Here are some of the popular types of guaranteed return life insurance:

1. Unit Linked Insurance Plans

Also known as ULIPs, This is not purely a guaranteed plan but depends on market-based return. These plans offer a combination of life cover and investment. Here, a part of your premiums is contributed towards life cover, while the other is invested in an equity or debt fund of your choice.  

2. Endowment Plans

In this variant of guaranteed return insurance, you get a life cover and the payment of a predetermined sum at maturity or a periodic bonus. It is ideal if you’re looking for life insurance along with a low-risk insurance option.

3. Money Back Policy

The Money-back policy is a special type of insurance that offers you a survival benefit after a set period. Say you have a ₹1 Crore money-back plan for 30 years. A guaranteed sum is returned as a survival benefit if you survive the tenure. However, if you pass away during this term, your beneficiary will be handed all the monetary benefits and bonuses. 

4. Retirement Plans

This variant of life insurance is a good option for individuals looking to create a retirement corpus. Here, you get access to a source of income post-retirement with the help of regular monthly payouts.

Advantages of Guaranteed Return Insurance

These advantages of guaranteed return insurance make it a favoured plan among the general masses:

1. Assured Benefits  

A standout guaranteed life insurance benefit is its promise of payout at maturity. Unlike term life insurance, a guaranteed return policy will certainly provide you with a lump sum at the end of the term. It can be either in the form of an insurance claim or a maturity payment. 

2. Withdrawal Option at Maturity  

Upon reaching maturity, you can withdraw a part of the invested amount as a guaranteed return. The best part is that a specific interest rate appreciates the sum offered, making it a handy financial resource for further needs.

3. Helps Build a Corpus for Further Investments 

The lump sum you receive at maturity allows, or the income-based return you get allows you to make further investments. You can opt for steady returns through an FD or invest in the financial market for higher returns. This can be used to meet financial goals like children’s education or retirement. 

Which Is Better for You?

Now that you know the difference between term life insurance and guaranteed return life insurance, the question arises – which plan should you choose? The final decision involves three key factors: your unique needs, budget, and financial aspirations. 

If you seek pure protection that promises a higher amount to your family in case of your demise, then term life is the preferred choice. Conversely, if you are eyeing a blend of life coverage with the perk of assured maturity returns, guaranteed life insurance might be your golden ticket. 

Also, you must remember that term insurance usually comes with lower premiums, making it a wallet-friendly option. If your financial goals include a surefire payout, the costlier investment in guaranteed life insurance could be well worth it. However, do note that you should compare guaranteed return life insurance plans’ return with the other investment tools like mutual funds or FD, which you might opt for from an absolute return point of view.

So, even though a Guaranteed Returns plan offers you a savings opportunity, if your priority is to secure your family’s future with a higher sum, then a Term Life Plan is a better-suited option. If you want to manage protection and savings motivation through life insurance, guarantee return plans can do it for you. 

Key Takeaways

Both term life and guaranteed return insurance plans have their own merits. Term life is ideal for those seeking financial safety for their family at an affordable cost. On the other hand, the guaranteed return plan is more about combining investment planning with insurance.

So, before selecting a plan, you must compare your options, evaluate your needs, and openly discuss them with your family members. You can leverage platforms like PhonePe to compare plans and get a seamless insurance purchase experience.