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Term Vs Whole Life Insurance: Which one you Should Buy?

There are many ways in which Term Insurance Plans differ from Whole Life Insurance Plans. You have to understand them carefully before buying them from service providers. Even though both of them offer life Insurance, the benefits you derive from them vary significantly. Remember that choosing the wrong policy can affect your life and finances. In order to avoid any inconvenience in future, you can get in touch with a reputed financial advisor and clearly understand which one is suited for your needs.

What is Term Insurance?

This is the simplest form of insurance. Earlier, this was the only available option from service providers, and later on the market emerged with different forms and varieties of insurance plans.

To explain it simply, a person needs to pay the premium for a fixed duration of time in this policy. After the maturity of the policy, the individual will not get any benefits immediately unlike other policies. However, the insurance amount will be paid to the dependents after the death of the individual. In this way, this policy provides death benefits and helps secure the individual’s family.

What is Whole Life Insurance?

These plans are similar to term insurance in some aspects. But the individual will have many benefits after the maturity of such a policy. In addition to that, it is also possible to borrow money in case of an emergency, by approaching the insurance provider. The policy also provides a good insurance cover for the individual and the entire sum assured will be provided to the beneficiaries in the event of the death of the insured person.

This is the best option to choose when you want to save money for the future as you can get back the money along with added interest after the maturity of the policy. When you carefully select the tenure of the policy according to your requirement, you can ensure a steady inflow of money for your future needs.

How do they differ in various aspects?

Let us carefully analyze the difference between Whole Life Insurance Plans and Term Insurance Plans according to different factors.

  • Tenure of the policy

Term insurance policy comes with a fixed tenure and you can choose long term or short term plans according to your convenience. Once you have selected the plan, it is not possible to stop the policy in any manner and you will not get any benefits if you discontinue the payments in the middle of the policy tenure. 

Whole life insurance policies offer a flexible tenure and you can easily choose multiple policies with different maturity dates. This helps you plan for your financial goals more efficiently. It is also possible to surrender the policy in between, or take a loan on the policy to avail emergency financial benefits. 

  • Premium payment for the policies

The premium you pay for Term Insurance Plans will be usually less when compared to other plans. This is because the individuals will not get any repayment of premiums upon the maturity of the policy. 

The premium you pay for Whole Life Insurance Plans will be returned to you along with added interest after the maturity of the policy. Generally speaking, the premium amount for whole life insurance plan will be slightly higher than term insurance plans. 

  • Cash Value offered by the policy

There is no concept of cash value in the Term insurance plan and the individual will not get any survival benefits after the policy matures. The only benefit is the payment of the sum assured to the nominee after the death of the policyholder. 

Whole Life Insurance plans build the cash value depending upon the investments made by the company with the premium amount. After you have paid the premium for few years, you can even avail a loan on the policy depending upon the cash value of your policy. Once the policy matures, the cash value will be returned along with a bonus to the individual. 

  • Savings provided by the policy

Term Insurance plans are not suitable when you want to save money for the future. As the individual does not get any survival benefit, this is like a one-way transaction where only the individual pays money to the insurance company for the entire tenure. The sum assured amount of the insurance policy will be given to the nominee of the individual after the death of the person. 

On the other hand, Whole Life Insurance plans are a better choice when you want to get savings as well as protection from one deal. In this way, you can get the benefits after the policy matures and even get suitable protection during any unforeseen event. 

What happens during critical illness or permanent disability?

You never know when an emergency situation can strike you and you need to be prepared for every situation in your life. In this regard, it becomes very important to analyze the difference between various insurance plans and choose the best one that offers complete protection even during your difficult times. Remember that you can easily pay the premium for any policy as long as you are working and your health is in good condition. However, when you face permanent disability due to an accident or end up in a situation where you are not able to work due to critical illness, it can become very difficult to pay the premium amount for the policy. In this situation, it is important to understand the different features of Whole Life and Term Insurance Plans.

  • Term Insurance Plans may not offer adequate protection in this scenario. This is the standard option and you need to consider a term insurance policy that comes with riders. Only then will your policy still be effective and you will not have to pay the premium amount for the rest of the tenure. There are different riders available for different conditions and you need to discuss the terms carefully with the insurance agent.
  • Whole Life Insurance Plans are more secure in this aspect and you can even get immediate benefits when you encounter such a difficult situation. This can be very helpful to provide for your medical needs and you can easily depend upon your savings through the insurance plans.

Which one is ideal for your situation?

After carefully analyzing the different aspects of both these plans, you should understand that each one has its benefits and you need to choose a combination of both these plans to provide the best security for your life. Remember that, it is very easy to buy both the plans according to your financial situation and future goals. In this way, you can get the best of both plans and provide proper security for your immediate as well as long term goals.

Best policy for youngsters and first time policy buyers

If you are still in your twenties and not married, you can conveniently choose the term insurance policy. This should be the first policy that you choose in your life as the initial premium amount will be very less for this kind of policy. Yet another advantage of beginning with the term insurance plan early in your life is that the premium amount will be fixed for the rest of the tenure. This way, you will be paying a very low premium for the entire tenure by choosing the term insurance policy early in your life. This is also the stage of your life when you will usually not have too many dependents and you can easily go for the term insurance plan.

Best option for married people with children

Once you are married and have kids to take care of in your life, your financial goals take a different direction and you need to plan accordingly. Whole Life Insurance Plans provide the best safety as well as savings for your future life. The simple thing you can do is to continue with the earlier term insurance policy, if you already have one, and add the new Whole Life Insurance Plan.

If you do not have any insurance policy and want to begin one at this stage of your life, you need a combination of both the plans and you have to divide your finances after consulting your insurance agent. It is a good idea to secure your family by choosing the term insurance plan and you will also have the benefit of paying less premium when compared to other plans. After this is done, you can focus on Whole Life Insurance plans and buy multiple policies that mature at different dates. This can provide significant financial assistance for your future needs. You can plan the tenure when you expect any major financial requirement for your kid’s education and other needs.

Ideal option for late starters in their 40s

If you do not own any insurance policy yet, you should make it a point to immediately choose small term insurance policy. Remember that you will be paying a higher premium for the same sum assured than people who are younger. Other than that, you can also add whole life plans according to your present financial portfolio and start saving your money through insurance plans.

To Sum Up

In this manner, most people usually buy both the policies during their lifetime and split their investments according to their age and financial condition. You can also follow the different guidelines given in this article and plan for your future.