February 21, 2024
Table of Content
1. About term insurance
2. Understanding whole life insurance
3. Term insurance or whole life insurance: Making the right choice
A life insurance plan is an important part of your portfolio diversification. There are two types of life insurance plans, namely term life insurance and whole life insurance. Many often confuse one for another as both provide benefits in case of the policyholder's demise. However, both options vary in terms of the policy tenure, cash value, and premium amount, among others.
As the name suggests, term insurance refers to the payment of premium for a fixed period of time. In case of the policyholder's untimely death during this period, the insurance provider is liable to pay the death benefit amount to the beneficiary or the nominee. In case the policyholder survives during the term of the plan, no maturity benefit is provided.
Understanding whole life insurance
Whole life insurance plans offer dual benefits of investment and protection for the entire life of the insured. Whole life insurance plans generally come with an upper age limit of 100 years. Such a plan also offers the advantage of cash accumulation that builds during the entire period of the policy
Both term insurance plans and whole life insurancepolicies have their set of features and benefits. Individuals may make the right choice between the two life insurance options by comparing the benefits and choosing the one that is best-suited to their needs.
Following are three major distinguishing aspects of term insurance and whole life insurance.
1. Premium
Term insurance plans often offer cheaper premiums than entire life plans. It is also vital to understand that with a term plan, the full premium amount is used to provide insurance coverage.The same is not the case with whole life plans. Part of the premium is used for insurance coverage while the rest is invested. In case the policyholder withdraws, surrenders or lives up to the maturity period, the accumulated amount is returned at the sum assured value. Policyholders may also enjoy the benefit of bonus in case profits are earned on the invested amount.
2. Tenure
By its nature, term plans offer coverage for a fixed tenure, such as 5, 10, 15, or 30 years. Whole life insurance plans, however, come with flexible tenures and are usually applicable till the policyholder reaches 100 years of age.
3. Cash value
As opposed to term plans, a part of whole life insurance premiums is invested in financial instruments.A cash value is therefore built up over time. This can be used by the policyholder to borrow money at a cheap rate. Term plans, however, do not offer such a benefit. Additionally, whole life insurance policyholders may withdraw a part of the cash value during the tenure of the policy.
Individuals may, therefore, take into consideration the aforementioned features and benefits while deciding between the two life insurance options. The best way to make the right choice is by keeping two important aspects in mind, the age and the purpose of buying the insurance policy. Individuals may opt for a term plan if they are in the younger age bracket, and may consider converting it into a whole life plan later in life. However, individuals in the older age group, such as 40 years and above may consider availing of a whole life insurance plan. Such an option offers coverage for the entire life and is also cost-effective as term plans levy a higher premium for older individuals.
Individuals may, therefore, opt for the right plan based on their age, financial situation, and the purpose of the insurance plan.
Related Articles
- Term Life Plan vs Money Back Plan - Know Before Buying
- When is the Best Age to Buy a Term Insurance Plan?
- Benefits of Buying Term Plans for Senior Citizens
- How to choose a nominee for your term insurance plan
- Offline vs Online Term Plan - Which Option is Better?
- Joint Term Insurance or Individual Term Insurance - Which is Best and Why?
