Insurance lets the insured shift their risk to the insurer so that the dependents in their family stay secured and assured about the future. Small accidents or unforeseen risks help us realize the significance of insurance in our life. It is not in the hands of an individual to avoid risks or uncertainties as to the latter against his will, will affect him, disable him or even worse kill him.Read more
The thinking that insurance is unnecessary has a direct impact on the individual and his family. As it is the family that goes through both, financial and emotional turmoil, in case an earning member dies unexpectedly.
Life surprises us a lot, these surprises may not always be delightful, and they can be devastating too. The grief of losing a member is difficult to forgo but his financial responsibilities can be transferred to something called Insurance in general and Life/term insurance in particular. One needs a clear understanding of the types of insurance (term insurance vs whole life insurance) before actually opting for insurance. The ‘why’ behind insurance is clear but the ‘which’ needs to be answered and understood.
Term insurance, as the name suggests, is valid for a specific period of time and offers a death benefit to the nominee in the event of the death of the insured. However, the policy is useless if the policyholder survives the insured period as there is no maturity benefit. The advantage here is the low premium that attracts many buyers most of which are people in the age group of 25-30. But here is the catch, the premium in term insurance keeps on increasing with time. This along with the ‘no maturity benefit’ clause makes the customer think about the long-term benefits of the plan.
On the other hand, is Whole life or permanent life insurance. Premium, though high, is fixed. There is a death benefit along with an income benefit (a cash account that is exempted from any taxes). Cash accumulated over time can be used or retained at the sole discretion of the policyholder. The cash can even be used for premium deduction or saved for retirement. Individuals above 40 years of age are advised to purchase whole life insurance. Such individuals have more liabilities in the form of spouses and children, so there is a need for both financial security and life protection. The high premium is the only concern of customers when buying whole life insurance.
Which insurance to buy can be answered by considering factors such as age and purpose (of buying the insurance) Someone as young as 25 should opt for a term plan and convert it into whole life insurance to save on the premiums in the early years of life. But a person aged 40 years or above should consider buying permanent life insurance. But before buying the latter one must ensure that they have cleared all their debts, are not suffering from any critical illness, are financially sound, and have sufficient funds for child education and everything else. Also, you can make use of a term insurance calculator to know the exact amount of premium to be paid towards the policy. Certain parameters help to evaluate which insurance plan is right for you as per your requirements:
|Parameters||Term Insurance||Whole Life Insurance|
|Premiums||The premium amount of a term insurance plan is comparatively lower than the whole life insurance plan||Premium amount remains constant throughout the tenure of a whole life insurance policy, unlike term insurance plans where they might get an increase at the renewal time.|
|Tenure||A term insurance plan generally has certain policy tenure to avail plan benefits||Flexible tenures are offered till the life assured is 100 years. In this, the survival or maturity benefits are paid out once the life assured completes 100 years.|
|Cash Value||In a term insurance plan, the amount of loan is subtracted from the SA as the insurance company accrues interest.||Premiums paid by the policyholder for a whole life insurance plan doubles up as an investment. An insurer can announce a bonus in case it makes proceeds and provides you a loan at viable rates of interest. Whole life policies allow you to invest savings while offering protection from future uncertainties.|
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
A term insurance plan is an ideal plan if you are in your early ages such as your 20s or 30s and not married. The early you purchase, the lower premium it will be with a high sum assured. In addition to this, if you have any current health concerns, term insurance plans provide good returns in a short term. In your 30s and when you are married, you must top the current term plan with a whole life plan rider. This provides you dual benefits of the cash value that comes with the term plan and the financial benefits of rider to your loved ones in case of your absence. In your 40s, you should go for a whole life insurance plan. This plan covers you for a lifetime and protects your family’s future after your death. So, select the right plan keeping the above points in mind.
Before buying term or whole life insurance it is advisable to precisely understand both types of insurance and also keep in mind your age and the purpose of purchasing the insurance.
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