Key idea
Both are called life insurance, but they do very different things. One protects; the other tries to protect and save at once, and does neither well.
When people say "life insurance," they often mean traditional plans (endowment, money-back, whole-life) that mix a small cover with a savings element. A term plan is pure protection. The difference in what you get is stark.
The same money, two outcomes
Term plan
- Very large cover (e.g. ₹1 crore)
- Low premium
- No maturity payout
- Pure protection
Traditional plan
- Small cover for the same premium
- High premium
- A modest maturity payout
- Weak protection + weak returns
Why the gap is so wide
For a given premium, a traditional plan might offer cover of a few lakh, while a term plan offers a crore or more. The traditional plan's "returns" typically work out to a low single-digit percentage a year, often below inflation. You pay far more for far less protection, in exchange for a savings return you could beat elsewhere.
The common regret in Indian households is a traditional policy bought as "insurance plus savings" that delivered thin cover and thin returns. The next two lessons look at those products honestly.
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