Confused between term insurance and whole life insurance? Here’s the best guide for you: Are you thinking of getting life insurance but are stuck on which option you should go for? Were you confused between choosing a whole life insurance or regular term insurance? Here is a guide to help you with all your confusion.
In the past few decades, the world of life insurance has grown enormously. With so many options in the market, people tend to get confused. While some buy whole life insurance, many have also started to opt for term insurance in India. Let us understand the differences between the two and which one is ideal for you?
- 1 Confused between term insurance and whole life insurance? Here’s the best guide for you
Types of life insurance
Let’s look at the types of life insurance first, as it will help us understand how much life coverage would be ideal for you after all. So, the following is the fundamental breakdown of both life insurances”
Term life insurance
Term life insurance is where you pay a fixed monthly or annual sum for a fixed tenure, and you get coverage for that fixed term. Term life insurance is basically a death benefit. You pay premiums, and if you die during the term, your nominee will get that death benefit. And if you don’t die during the stated period, your paid-up premiums will be kept by the insurance company.
Confused between term insurance and whole life insurance? Here’s the best guide for you
Let’s understand this with an example.
Varun buys a ₹ 1 crore term insurance for 30 years at the age of 30. He needs to pay a fixed amount of ₹10,000 per year for the next 30 years, and his coverage will remain the same throughout the term. Now, if he passes away during the term, his family or set beneficiary will get the fixed amount, and if he outlives the policy, then the policy will simply expire.
Although to many people, the idea of term life insurance seems silly, the policy is an affordable option if you are healthy enough. The premium for the plan tends to lessen if the likeliness of death is less during the term. So, in conclusion, if you are healthy and young, you can get a very decent death benefit for lower monthly payments.
Whole life term insurance
Whole life insurance provides the insured party with lifetime permanent coverage in exchange for regularly paid premiums. It tends to get costlier than term life insurance. With many different types available in the market, it becomes a bit complex to understand. To state in the simplest terms, whole life insurance is permanent life insurance.
It is said to have matured when the amount of premiums paid into your whole life policy equals the death benefit. Generally, whole life insurance is designed to mature when you turn 100.
Term vs whole life insurance
When it comes to insurance components, whole life insurance is made of premiums, death benefits, and cash value, while term insurance is made of only premiums and death benefits.
Since the term insurance only remains for a fixed duration, the premium payments are comparatively lower than whole life insurance. This is one of the biggest benefits of term insurance plans like the iSelect Star Term Plan.
However, mostly with all term plans, the premium amount gets increased with age. This is why it is always suggested that term insurances should be bought in early life stages.
The main difference between the two insurance products is the cash value component in the whole life insurance. Cash value is sometimes referred to as a living benefit. Term insurance doesn’t amount up to anything if you are alive after the term, as the plan expires then.
In whole life insurance, however, part of the premiums you pay goes to building up the cash value. This means that even if the policyholder outlives the policy, he or she gets a guaranteed payout after the fixed tenure.
This amount can be used to pay the medical expenses or pending debt. With increased options, you will find different whole life insurance policies that offer payouts in different ways. But one thing that remains the same is the extra layer of financial security that these policies give that term plans simply cannot.
What is ideal for you?
At this point, you have understood how both insurance policies work and how they are different from each other. Now, which is ideal for you? To understand this, let’s have a look at the options people generally prefer.
People in their 20s or 30s prefer term insurance more as it offers high death benefits at a lower premium. The high premium rates of whole life insurance are why people in this age group choose not to purchase insurance. The affordable premium payouts of the term insurances make them a more budget-friendly option.
However, people in their late 30s or 40s tend to see whole life insurance as a better choice. When people reach this age, they have more responsibilities toward their families. So, the financial security and life coverage offered by this policy become more useful.
Now, which is ideal for you? Remember, the above age groups and their choices are general consumer behavior. Only you can decide which is suitable for you based on your financial situation and needs. For instance, you may have a job that makes whole life premiums affordable or requires lifelong financial cover. Alternatively, you may want to enjoy the benefits of a ₹ 1 crore term insurance policy and work your way towards a lifelong cover later in your life.
The choice between term and whole life insurance should be based on your needs and situation. Furthermore, there are many different types of term insurances and whole life insurance policies. To make up your mind, it is important to have a fair understanding of the available options. This helps make a well-informed decision. The current situation, needs, and financial habits are the essential factors that people should look at prior to deciding. Doing so will ensure a more financially secure life in the future.