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 the latter against his will, will affect him, disable him or even worse kill him. 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 clear understanding about 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 death benefit to the nominee in the event of the death of 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, 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 death benefit along with income benefit (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 spouse and children, so there is 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 a 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 a 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 term insurance calculator to know the exact amount of premium to be paid towards the policy.
So prior to 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.