Life is all about the little moments we enjoy with our loved ones. But these moments can be interrupted by an unexpected event, leaving your family emotionally and financially drained. So, getting life insurance is the first step towards creating a safer and more secure future for your loved ones. By investing in a life insurance plan today, you are providing security for your family tomorrow. In addition, life insurance plans are affordable, which means that you are preparing for life’s emergencies without affecting your current financial goals.
If you want to secure the future of your children and spouse, life insurance plans such as whole life insurance and term insurance, are an important part of financial planning. It also gives you and your loved ones the financial freedom in the event of an unexpected event. However, buying both types of plans is not economically sound. Hence, it comes down to making a choice between the two. Both being great options for life coverage, it is tough to decide which one you should buy. Here is a comparison that could help you:
Whole life insurance
Also known as permanent insurance, it is a type of insurance that offers lifetime coverage. Premiums for this whole life insurance are generally higher compared to other types of insurance policies. There is also the cash value feature that serves as a tool for investment in the whole life policy.
Here, after a certain period of time in your policy, you can withdraw the money accumulated as premiums. However, this money must be re-deposited, otherwise, the death benefit of your policy will be significantly reduced. So, in a nutshell, permanent insurance provides you with financial support when you need it along with the life cover.
The meaning of term insurance can be understood by the fixed term of the insurance policy. Under these policy terms, the beneficiary receives the death benefit only while the policy is active. If you live until the policy matures, you will not receive any benefits. It is purely a protection scheme and has no investment element.
Difference between Term and Whole Life Policies
While both types of policies are great options and serve the purpose of securing your family against the event of your death, there are stark differences between them. As a result of these differences, each of these policies is suited to different types of people. Hence, you need to understand these differences and whether you are suited for whole life coverage or term coverage. Here are a few differences that these two policies have:
- You can get term insurance policies by paying lower premiums as compared to life insurance policies.
- The premium is fixed over the policy term in the case of whole life plans. In the case of term insurance policies, insurance providers use dynamic premiums when determining the term of the policy for renewal.
- Under no circumstances will the premium be refunded under the term insurance policy. If there is an actual claim against death, the sum assured will be paid. Otherwise, there will be no maturity benefit. Whole life plans offer to return premium payments if the insured is alive after the policy term is over.
- Term plans offer a fixed term. The policy benefits apply only during this term. In the case of whole life plans, the policyholder is the most flexible tenure. Generally, whole life coverage applies until the policyholder reaches 100 years of age.
Which one should you choose?
Ideally, if you are a married person in your 20s or 30s, a term plan is the best choice for you. These plans offer you better protection for a reasonable premium payment. Moreover, if you have health problems, term plans are ideally placed to get the highest benefits in the short term.
If you are an applicant over the age of 40, whole life policies will suit you best. While this plan is effectively cheaper than the term plan at this stage in your life, it will cover the rest of your life. In addition, you can guarantee that you will leave a good legacy for your future generations when you die. You can take the help of a term plan premium calculator to determine the payouts and their frequencies.
Despite all the points mentioned above, there is no compulsion on which policy you can or cannot choose. However, you should know which one would be best for you and your family. You can go through your finances and future financial requirements to have a better idea of what coverage you need.