Term or whole life insurance– which policy should you choose?
We Indians pride ourselves on being extremely smart, planning events right to the last detail. Most of us have a plan for the future, knowing when exactly we wish to get married, when to have children, when to retire, etc. While planning is good, we fail to take the unpredictability of life into account. The thought of death can scare most of us, and it is perhaps a good thing to be scared, for it is this fear factor that helps us plan the well-being of our loved ones. One investment which can help is an insurance policy.
Insurance penetration in the country has seen a steady increase over the years, having reached 3.42% as of 2017. The global average stands at 6.2%, showing that Indians have a long way to go. Thankfully though, we are opening up to the idea of buying a life insurance policy, with insurers offering a host of products.
While there has been an increase in an understanding of life insurance, most of us are not able to choose the best life insurance policy for our needs. The reason is that we are unable to comprehend the products and our needs. Term plans and whole life plans are two of the most popular options available, yet people find themselves at sea when it comes to selecting between them. For those who find themselves in such a position, here’s how they can reach a consensus.
Understanding term and whole life insurance
A term insurance plan, as the name suggests, is designed to offer protection for a particular time period. The policyholder is financially protected against his/her own death only for the period of the plan. The policy does not pay a benefit if he/she passes away after the expiry of the term, which is a major reason for people to be apprehensive. Additionally, there is no maturity amount associated with such plans.
A whole life policy, as implied by the name, provides cover for the entire lifetime of the policyholder or until he/she attains the age of 100 years. This ensures that the family/nominee of a policyholder will be financially protected on the demise of the policyholder.
Areas where term insurance scores over whole life insurance
Given the fact that an insurance policy goes beyond our present way of life, it is important to know different parameters before selecting a plan. A good term plan scores over a whole life policy in the following areas:
● Affordable—Imagine getting a cover of Rs1 crore for as little as Rs1,000 per month. Sounds too good to be true, right? But the fact is that a term plan offers a high cover at an extremely affordable premium. This can help one secure the near future of his/her loved ones without emptying his/her bank account. One can increase the cover by a few lakhs by just paying a few hundred rupees extra each year.
● Pure protection—A term plan scores high when it comes to the protection it offers. Without any maturity benefit, it helps one focus on a single objective – to secure the finances of the family in case of the policyholder’s demise.
Areas where whole life insurance scores over term insurance
● Lifetime protection – A whole life insurance plan offers lifetime protection, wherein the nominee will be paid a sum assured when the policyholder passes away.
● Assured payout – The policyholder can be rest assured that his/her family will get financial benefit on his/her demise, regardless of when it happens. This amount can be used by his/her beneficiaries to meet their current requirements.
● Bonuses – Whole life policies can earn bonuses, which ensure that they offer decent returns.
● Loan – It is possible to take a loan against a whole life policy, which can be extremely useful during an emergency.
Which one should you choose?
The answer to this question boils down to who you are and what your current position in life is. Ideally, a term plan is suited for people who are younger, say under the age of 30 years. Such people typically have limited liabilities and might not be in a position to spend a huge amount of money on an insurance policy. The low cost of a term plan makes it suitable for them, for they can utilise the money saved on high premiums and invest it in other instruments like a health insurance plan. The premium for a term plan remains the same throughout, so it makes sense to purchase this at a younger age when the premiums are at the lowest.
An individual who is the sole breadwinner of a family can choose to buy a term plan to protect his family for the period during which his/her earnings are crucial. For example, Ram is the only earning member in his family, with his parents depending on this income. Currently 30 years old, Ram decides to buy a term plan for 30 years to protect his family in case of his demise during his earning years.
A whole life plan is suited for individuals who are over the age of 40 years. Such individuals look for more than just protection, aiming to generate returns on their investment as well. People who have more commitments can purchase this plan to help the family meet any emergencies in case of their demise. The plan can also help fulfil obligations towards the spouse or children.
What one needs to figure out is the purpose behind buying a life insurance policy. Based on this, one can compare the life insurance plans and choose the right one. While they are both different in nature, they do protect the interests of the policyholder, making them a must-have in life. However, it is equally important to compare a wide range of plans when you opt for other insurance products like motor insurance, two-wheeler insurance or any other general insurance products. Comparison always helps you take a well-informed decision and choose the best insurance policy available in the market.