It is often said that the best way to protect your family's future is by securing it today. But how do you choose the right term insurance plan that truly fits your needs? In this episode of The Policy Project, we dive deep into the world of term insurance and explore how it provides a robust financial safety net for your loved ones. Featuring Joseph Terrence, Business Head Life Insurance and Investments for Policybazaar.ae and Tanushree Mukherjee, Product Head - Associate Director Digital Sales - Metlife Gulf Region, we break down the essentials of term insurance, discuss the various benefits and add-ons available in the UAE market, and answer your most pressing questions to help you make an informed decision. Tune in to learn how to protect your family and secure their future with the right term insurance plan!
You are listening to policybazaar. ae's The Policy Project. We've got you covered. Hello, ladies and gentlemen, welcome to another exciting episode of the policy project. I'm Sid, your host and your go to guide for all things insurance. And I really do hope that you all are doing great today. Well, in this episode today, we're going to be diving into a topic that is often not talked about in detail.
And a lot of us don't understand the need of it. Why we actually need term insurance and what does it have to offer us? But to really understand the need, we first need to dissect the product itself. So let's get the basics of term insurance, the difference between term insurance and traditional life insurance.
And to help us understand this better, we've got special guests with us. today. Please join me in welcoming Tanushree Mukherjee. She's the associate director, digital sales, MetLife Gulf. And along with her, we have Joseph Terence, the business head, life insurance and investments at policybazaar. ae. Welcome Tanushree.
Welcome Joseph. Pleasure to have you guys here on the policy project. Thank you Sid. My pleasure to be here. Thank you Sid. Pleasure to be here. Awesome. So ready. Should we dive right in? Yes, absolutely. Okay. So as always, Joseph, we will start with the basic question as always. What exactly is the difference between term insurance and the traditional life insurance in terms of Coverage.
So the term insurance is a very basic product that we have. When we speak about the traditional life insurance, we usually mean whole of life, you know, as a life kind of a product in the market. Now, uh, there are various differences of various things that we can compare, uh, when we say these two products.
But The major differentiation or major thing that, uh, every customer or every person needs to know, I would say is three basic things. One is the cost of insurance, coverage, and probably the cash value because the traditional or the whole or life kind of a product has a cash value attached. So cost wise, if you look, uh, your term insurance product is the cheapest product that you can have.
Right. Which provides you a coverage. It's, it's kind of a pure vanilla product. There's no funds to it, but when you look at the permanent insurance or the traditional insurance product, a whole of life, universal life, you have a lot of cash value and those kind of benefits also attached to it. Uh, the second part is the cost wise.
Okay. The term insurance is cheaper one. Your other insurance, the permanent life or the whole of life insurance is slightly expensive than the term life insurance. Now in term insurance, there is no cash value. It's like a pay as you go prepaid line where you pay for a period coverage, you get coverage, the term is finished.
Everything finished. There's no cash value. Uh, but on the other side, when you look at the, uh, whole of life or a traditional, uh, unit link product, uh, you might get something back in return. It accumulates some kind of a cash value. Okay. Interesting. So how are term insurance and traditional insurance? Life insurance different when it comes to, let's talk about variants and the objectives.
Why would somebody want to take a term insurance when there is no cash value involved with it? As I said, so the cost part is a major factor when you look at, uh, like a term insurance, which means affordability, right? You need. So if you look at the objectives, like we'll go into the, uh, variants later. Uh, so if you look, it is like, okay, I need coverage for a certain period, but I cannot pay a.
I'm a huge premium, right? Okay. So affordability is the first thing. Simplicity is probably the second one, which is term insurance is like no frills. It's, it's a very simple product to understand. You don't need, like, you don't need to be a scientist to understand this or a brainer, like anybody can understand.
And again, the need here is only for protection for specific needs. Like Okay. You know, uh, you know, I am the sole breadwinner of the family, you know, and my kids are still growing. They're not yet started going to college. So, you know, anything happens to me, what will happen to them? So that is a protection part, right?
Now, when you look at, uh, what are the different variants of it, In term life insurance, the basic one that is sold across the globe is called the level term insurance, which means you take a plan for 30 years. Your premiums are flat for 30 years. Benefits remain same. Second is your decreasing term. You call it, uh, now you call it decreasing term, but actually it is the summer short, which is decreasing over the period.
Now this is usually taken against a mortgage or, uh, you know, uh, any, any kind of level that you've taken. Okay. The third one. A renewable term insurance, which can be for a period of one year, which is an annually renewable or a 10 year, five year, whatever, renewal. Right? So here on the instances that, uh, the insurer actually guarantees that, okay, if you take a five year renewable term, after five years you renew, we will renew the policy and probably even convert into a whole of life policy.
You will not need to do further medicals or whatever you want. I mean, it's, I, I'll guarantee that you, it'll renew. But your premiums will change for the next period. On that note, let's have Tanushree in to help us understand the premium costs, which are in between, if we compare in between term insurance and those of traditional life insurance.
So Tanushree, welcome to, uh, The debate and welcome to the topic and how the premiums designed or finalized in terms of both the products. So when we talk about term insurance, as he mentioned, uh, it is a simple product. It is for a specific need, and it's also for a specific term, which means it is also more affordable.
So when we compare term and we compare traditional life insurance for the same coverage amount, term is cheaper. Um, why is it cheaper? Because it doesn't have a cash value attached to it. When it comes to, uh, the traditional, there is a cash value attached to it and that increases the premium amounts. So how do we price these products, right?
Both these products, we consider the age, the health status, the lifestyle. For example, if you smoke, if you don't smoke, these are the primary factors for pricing it. Okay. Now the term period and the coverage amount is a factor for pricing the term insurance product. And when it comes to the whole life or the traditional life insurance, it also is the, um, the cost of maintaining the policy throughout the lifespan of the insured, as well as the cash value, because a portion of that premium is going to get accumulated as cash value.
So generally, the traditional will be costing you more, the pricing is more versus the term insurance. Fair point. Okay. So in terms of, you know, If we come to flexibility then in terms of term insurance, vis a vis traditional life insurance, how do we compare both of them? Is, is there a place that one is more flexible than the other?
Uh, the flexibility also is different types of flexibility. So let's say when it comes to term insurance, it's not very flexible because again, it's for a five or 10 or 20 period, uh, 20 years. So it's a fixed period of term. It's a fixed benefit. So there's not much room for doing anything in that period where you are policies in force.
But if you are at the time, at the time of renewability, so if your term is over and your company is offering you a way to renew the policy, you might have some leverage over there in adjusting your new ability or even convert the policy into a whole life. When it comes to traditional, uh, it's more flexible in terms of the withdrawals you make.
So it could be policy loan alone against the policy. It could be a cash withdrawals that you make against the accumulated value of the policy. So that flexibility is a different type of flexibility. Okay, but can you explain the typical target demographic for these two products? Just trying to understand who goes in for a term insurance and who would want to go in for a traditional life insurance because my dad was always into, you should have traditional life insurance.
Even after anybody goes away, you have some money coming in. But The term insurance, who are we actually targeting? So let's get back again, uh, to the need and to the pricing factor. Okay. So first of all, term is cheaper. Right. So it's, uh, usually for a demographic who is looking for, um, a good coverage, but at a more affordable rate.
Right. Um, also it is very specific to the need, right? So if you have a young family, uh, if you have a child who is growing up, if you have a mortgage that you are paying, so you want to protect your life and your family in that period of time. Okay. So it is dependent on the event and the circumstance of your life that you go for term insurance because it's cheaper.
You know what you're trying to protect, and you know the duration that you're trying to protect it. Right now when it comes to the traditional life insurance, it is, um, it is for more higher affordability So you're looking at more estate planning. You're looking at more financial protection throughout your lifetime You're looking at investment.
You're looking at cash value at the end of that investment. You're looking at Leveraging that for maybe some withdrawals during your lifespan. Okay, so there is a different Mindset and a need for each of the product and they're very unique to each of the product Interesting. Interesting. So when we are talking about both of these products in terms of death benefits, are there any differences in terms of the payout that happens between the two insurances and Joseph, you're more than welcome to join in in this one.
So talking about death benefit is it is more or less the same amount that you get paid. So if you've taken a 1 million coverage as death benefit, the payment is same for both cases. Now, right. Uh, when you look at term insurance, your only coverage. Or the main coverage is a death coverage, right? So your death is covered.
So it's like, okay, uh, insurance cover is paid due to death. Your policy is finished. If you look at, uh, okay, so, so basically it's purely for what you're paying for. Now, when you look at whole of life or a traditional insurance, what happens is there are two benefits, two benefits you can attach actually. I can't say benefit.
There are two ways that benefits are paid. One is basically an inclusive benefit, which means you have taken a 1 million some cover and you have a cash value, right? If your cash value goes beyond death benefit, then you're paid the cash value. Whichever is higher, like, and the second way is you have additional payment, right?
Second is your cash values are totally different from your death benefit. So if somebody dies, you get some death benefit, which is your sum cover of 1 million plus whatever cash value you have. So you have two benefits paid separately. Very interesting. Very, very interesting. Thank you so much, Tanushree.
Thank you so much, Joseph. And with that, we now move on to our next segment. It's called Ask Away. Now here we take up FAQs by our lovely customers and we respond to them with the help of our experts. So if you too are an inquisitive and a curious learner like myself, and you've got questions about finance, about insurance, then You don't have to hesitate.
Just ask away. Slide into our DMs on Instagram. Follow us on Policy Bazaar UAE and reach out to us via any of the other social media channels. We'll try our best to answer your questions in the next episode. But today we shall be taking up questions related term insurance versus traditional life insurance.
So Tanushree and Joseph ready to answer our askaways. Yes. Let's go. Fantastic. All right. So the first one is from Hafleen and she wants to know, how does the level of risk management differ between term insurance and traditional life insurance? Tanushree, would you want to take that one? Sure. Um, so the risk, uh, depends again on the type of the policy, right?
So when it comes to term insurance, uh, it's highly risk managed, but the risk is also limited into that term. So because it's specific to the term period, uh, the risk factor is consolidated and hence the premiums is cheaper. But when it comes to the traditional life insurance, the risk is spread out across the lifetime of the insured.
And there is a component of the risk of the investments that is going towards the cash value. So the risk is, um, factored into the pricing there, which also makes the pricing more in case of traditional. All right. Anything else, uh, Joseph, would you like to, uh, add to that? I mean, yeah. So risk management basically is also the cost, right?
So term insurance for a shorter period, which means your cost of insurance is also less. Traditional insurance, again, for a longer period. So your, I mean, your cost of insurance actually high. So it's, it's basically you're addressing a long term financial planning versus a short term, uh, protection. So that are the difference.
So your risks are basically based on that. Fair point. Arjun wants to know how do underwriting requirements differ between term insurance and traditional life insurance? So in this case, it's actually a little similar for the underwriting of both So when it comes to term insurance, uh, underwriters look at the age, the health of the lifestyle, as I mentioned before, it could be your smoking status.
Um, and what they do is they ask a series of health questions and basis your answer to those health questionnaire. You might have to go in for medical exams and your reports are provided for underwriting. When it comes to, uh, when it comes to the traditional life insurance, what happens is it's more comprehensive because it is covering your entire life.
So in this case, there is more detailed questionnaire. There are more detailed medical exams and also in certain cases, financial underwriting that comes into picture. Interesting. All right. And the last question is from Ghazal and it's for both of you, uh, Joseph and Tanushree. And I know a lot of people have this question, so we'll go with this.
What are the considerations for selecting either term insurance or traditional life insurance based on the individual financial goals and circumstances? So, uh, Joseph, would you want to go first? As I said before, and we were discussing your, everybody has a different, Goal set in mind, right? And their protection need is different.
So when you look at term insurance, it can be for a shorter term, or it is usually for a shorter term, a defined period. And somebody who wants a very affordable kind of an insurance. Probably it can be a very high sum cover for a small period of time just to cover a particular scenario. And when you look at traditional insurance, they are also called permanent insurance by the way, uh, because it's a long term, uh, these are meant for your lifelong coverages, uh, where your key idea, I mean, your basic idea is to protection for a longer term or whole of life.
Hmm. And. estate planning or saving some money for your retirement, right? It's kind of a vehicle that you have used. Uh, that will be the two conditions that people should think of. What is my need and for how long do I need the coverage? These two things would define what product you want to take and if you can effort.
Fair point, fair point. Uh, Tanushree, would you like to add something to that? So I'll echo what Joseph said. Term insurance is basically a temporary financial responsibility. So you have a child growing up, you have a mortgage. So it's a temporary term where you need your protection. Versus traditional life insurance is a permanent coverage.
You're covering your entire life. You're also looking for investment. You're also looking for returns and you're being able to afford it. forward the higher premiums. It comes with the complexity of the product. So your need, uh, your affordability, your term, all of these factors play into deciding which product is suitable.
Perfecto. Ghazal, we hope you got the answers you were looking for. And with that, it brings us to the end of this segment as well, but don't go just yet. If you have any questions about finance, about insurance, then simply listeners ask away. DM us on Instagram, follow Policy Bazaar UAE, or reach out to us via any of the other social media channels, and we'll try our best to answer your questions in the next episode.
For now, I hope we're all updated with our knowledge about term insurance, what is the difference between term insurance and traditional life insurance as well. And, uh, we'll meet again in the next episode with more informative, with more insightful content as well, along with our experts. So thank you so much, Joseph.
Thank you so much, Tanushree. Pleasure as always to have you on board. Thank you so much, Seth and the team. Thank you for having me. I hope I answered all your questions. Well, if not, we'll always have you back. Absolutely. Thank you so much, guys. For the rest, thank you so much. That's it for today's episode.
See you in the next one. Till then, take care and stay tuned. You were listening to policybazaar. ae's The Policy Project. We've got you covered.