The insurance business in India isn’t just growing, but also becoming more sophisticated in terms of product offerings. To help readers keep ahead of developments in this business, Mint features a Q&A on insurance every Monday.
I am 29 years old, and I am planning to invest in whole life insurance. I already have term life insurance for which I pay Rs8,000 annual premium for the cover of Rs30 lakh. Is there any difference between term plan and whole life plan? I have heard that whole life insurance has higher premiums.
A term plan provides pure life cover. A whole life policy has an element of savings built into it. If you are looking only for life cover, and have other alternative investment plans, then a term plan may suffice. A whole life policy provides a guaranteed death benefit, in addition to which it also builds a cash surrender value. This cash surrender value can be accessed even while the policy is in existence. It offers tax-deferred cash values that, as they accumulate, can be used to help purchase a home, help pay for a child’s education, or supplement retirement income. Of course, you can allow cash values to grow to help meet an unexpected emergency or seize an unanticipated opportunity. A term policy provides cover for a shorter term, normally till age 70-75. A whole life policy typically protects you till 100.
Yes, you do pay higher premiums for a whole life policy, compared with a term policy, so that a part of it is invested. For a term cover, you only pay for the risk of death. But while your whole life insurance will never expire, the term life insurance will come to an end, and it will cost you more money to renew it because you have to buy a new policy at a new rate, and you will be older and therefore a higher risk for any insurer.
The most important feature about whole life insurance is its versatility. Like an umbrella, it can help buffer you and your family from life’s unexpected surprises. But unlike an umbrella, whole life insurance can expand to provide greater protection and cash value as your needs increase.
Readers are welcome to write in with their queries to firstname.lastname@example.org. The questions will be answered by senior executives from leading insurance firms.
This week’s expert is Rajesh Relan, managing director, MetLife.