Have you been confused between term insurance and Whole Life Insurance policies? You are not the only one. Many people struggle to decide between these two plan types of life coverage when planning to secure their families financially. So, what’s the solution? Let’s break it down below.
Term Insurance- A Closer Look
Term insurance is relatively straightforward. However, here are some of the key points to know:
- Coverage Period: Life coverage is offered for a definite period (can be up to your retirement), like 10, 20, 30, or even 40 years (based on how early you start).
- Death Benefit: Unfortunately, if you die within this period, a sum assured is paid to your nominees.
- Flexible Coverage: You can select this coverage amount, keeping the family’s future financial requirements in mind.
- Affordable Premiums: Premiums are usually lower for a comparatively high coverage amount if you begin at an early age (since you will have lower risks of ailments) and may also be lower than many other plans.
- Coverage Adjustments: You can flexibly increase your coverage down the line, keeping evolving needs and different life stages in mind.
- Variants: Term plans have several variants, including the return of premium, increasing/decreasing sum assured amounts, and so on.
- Tax Benefits: Tax deductions are also available for premium payments that you make across the policy period.
Whole Life/Permanent Policies – Lets Deep Dive
Whole Life Insurance is different from term plans. Here are some of their major aspects:
- Lifetime Coverage: You get coverage for your entire lifetime (this is typically up to the age of 99 years).
- Death Benefit: The death benefit payout is also provided to your nominees in case of your unfortunate demise during this time.
- Savings Component: There may also be a savings feature included in these policies. You can build a corpus over the years and use it to generate income in the future. This is ensured by allocating a portion of your premium to investments, which may increase at guaranteed rates. This cash value is accessible during your lifetime via loans/withdrawals as well.
- Higher Premiums: The premium amounts are higher than those for term insurance policies since you get coverage for a lifetime and also the savings/investment component. It is tailored for those looking to leave behind a legacy for their families or those who are considering estate planning.
Which One to Choose?
So, which is the best choice between term insurance and whole life/permanent policies? If you want to pay lower premiums for relatively higher coverage, then term plans are your best bet since Whole Life plans will be costlier in terms of their premiums. Alternatively, if you want to get permanent or lifetime coverage and leave behind something for your loved ones as part of your estate (with an investment/savings component), then whole-life plans may be a better option. If you alternatively need insurance only till your children grow up, or you retire, then term plans may be more suitable. It all depends on your financial situation, specific needs, and preferences. Hence, it is advised to choose wisely.
