Securities in life come with planning and saving money in the right volume and time.
“Save your money. You are going to need twice as much money in your old age as you think.”-Michael Caine.
Saving a portion of the money you earn every month can appear a handy and manageable task. But practically, that is not possible for families who still live together with one earning member in the family. Finances remain a constraint, which is why a large part of the population in India prefer to make investments through instruments. Out of approximately 136 crore people in India, only 4.3% make financial investments. Nevertheless, active investor accounts rose by a record 10.4 million in 2020. The type of product chosen varies from the perspective of investment. Two standard financial products sold in India include Term Life Insurance and Whole Life Insurance Cover.
Let us look at each one by one and see which one is better.
What is a Term Plan?
The insurance policy applicable for a specified period is defined as a term plan. The cover under the plan begins only after realising the premium paid. It is a long term savings plan that helps a family achieve their financial goals when the policyholder passes away during the term plan.
Term Plan is the most accessible life insurance without many complexities. You buy a cover and live to pay a premium to benefit your family. If the policyholder dies during the policy term, the sum assured is paid to the nominee. These plans are also the most affordable, which can be continued for a more extended period.
- The Term Plan is affordable.
- It is best when you buy it at an early age.
- The insurance can be taken for a more extended period.
- The Term Plan gives you a feeling of all money spent, and in the end, you get nothing.
- Protection is provided only during the policy.
Next, let us see what whole life insurance is?
What Is Whole Life Insurance?
A Whole Life Insurance, on the other hand, is different from Term Insurance. The cover continues till the time you pay a premium for it. After that, whole Life Insurance pays the policyholder some “cash value” along with the death benefit. If the policyholder survives upto the age of 100 years, then the matured endowment coverage is provided as a maturity benefit.
The premium under the whole life insurance is paid for the first 10 and 15 years, but the insurance cover is extended till the entire life of the policyholder. Under this type of life insurance cover, the premium component is split into two; one goes to the insurance component while the other helps create a fund for future financial requirements.
- The premium for the whole life insurance policy is fixed, and it does not fluctuate irrespective of the market conditions. It keeps you free from worries of an increase in premium with age.
- The policyholder’s death benefit is guaranteed until the time premium is paid.
- The money collected in funds under the whole life cover can be used for emergency funds. You can take a loan against the funds collected.
The cash value of the funds may increase over time when you continue to contribute money to the funds.
- The value of the death benefit goes down if you take out a loan against the money collected.
- You cannot stop making premium payments under the policy as it affects the cover.
After understanding the type of cover, it is best to evaluate which one is a better insurance policy.
Which is Better: Term Insurance or Whole Life Insurance?
Here is the difference between Term Life Insurance and Whole Life Insurance:
|Particulars||Term Insurance||Whole Life Insurance|
|Cost||Term Insurance is cheaper than the whole life insurance.||Whole Life Insurance is costlier than the term cover. It costs 5 to 15 times more than the term policies. The premium is paid for a limited time of 10-15 years and hence it is higher.|
|Continuation||If you are not able to afford the premium, you can quickly stop making the payments.||On the other hand, if you stop making the payments under Whole Life Insurance, the death benefit will cease.|
|Surrender Charges||No surrender charges if you stop making the premium payment for a term plan.||You will have to face the surrender charges if you choose to stop the policy payment.|
|Loans||You cannot take loans against the premium paid under the term plan.||You can take the loan for the amount contributed to the funds. These loans are tax-free. The outstanding loan amount reduces the death benefit.|
Looking at the table, the favourable policy is the one that appears to match your requirements. Term plan is affordable, whereas Whole Life Insurance cover allows you to collect funds for varying financial needs. However, in recent times, the Return of Premium option feature does pay you all the premiums back if you survive the policy term. But the premium for this additional feature is comparatively higher.
Term life insurance is pure life insurance, whereas Whole Life Insurance is a dual benefit policy. The premium you pay under the Term Plan changes dynamically, especially at the time of renewal of the policy, which on the contrary, is fixed under the Whole Life Cover.
Whether Term Life Insurance or Whole Life Insurance, the policy you purchase must also meet your financial goals after keeping in mind the affordability. If the idea of buying an insurance policy is an accumulation of wealth, then whole life insurance is a better idea. Still unsure of which insurance product you should choose, check both Term Plan and Whole Life Insurance online. You must also ask an expert before taking the final call of buying the policy.