Insurance is the coverage of financial risks on the life’s journey. Your financial goal is not only for you but also for your family who are dependent to you. When you are not around them it will have direct impact on the lives of other family members. They have to spend emotional as well as financial turmoil. In this scenario, you can at least secure the financial future of your family by the help of right insurance. The choosing of a proper insurance plan is very important. You will know the difference between term and whole life insurance policies after reading this post and you can choose which is best fit for you.
The insurance policies are the cover for risks which can jeopardise your financial goals. You need health insurance to cover the healthcare costs and home insurance to cover the damages due to various natural calamities. You may be aware that third party car insurance is mandatory for each and every car in India.
Also, there are various types of life insurances such as term insurance, endowment insurance, ULIP etc. One should choose the insurance based on the requirement. Here, is a comparison between term vs whole life insurance, what is applicable for you at what circumstances.
What is Term Insurance?
Term Insurance is a type of life insurance which provides coverage for death benefit for a specific time period. The Beneficiary or nominee will get the sum assured after the policyholder’s death. This type of insurance is designed to protect your family when you are not around them to take care of their requirements.
The premiums are usually low for term insurance compare to other insurance plans. You can also get the tax benefit under section 80C of income tax act.
Term insurances can be bought through online as well as offline.
Some of the examples of term insurances (Online Mode) are:
- LIC’s E-Term
- Max Life Online Term Plan
- Tata AIA I-Raksha Supreme
- ICICI Prudential I protect Plan
Some of the examples of term insurances (Offline Mode) are:
- Bajaj Allianz iSecure More
- HDFC Life CSC Suraksha Plan
- SBI Life Smart Shield
What is Whole Life Insurance?
Whole life insurance is the insurance policy which covers the death for the entire lifetime of policy holder. It is called as permanent insurance also. The beneficiary or nominee will get the cover amount when after the policy holder’s death.
The Insurance cover the life up to 100 years of age. If the insured lives more than 100 years, the policy will become matured like endowment insurance plans.
Whole Life Insurances generally is bought through offline mode.
Whole Life Insurance is of two types:
- Non Participating Whole Life Insurance
This type of policies does not offer any dividends or profits to the policy holder. As a result the premiums are mostly fixed and low.
- Participating Whole Life Insurance
Participating type life insurance policies offers dividends as benefit to the policy holder. The premium is high in this type of product compare to the earlier. The announcement of dividend by the insurance company is not sure. If they provide bonus or dividend these policies will be able to attract the benefits.
Based on the premium payment terms Participating whole life insurance can be of different types such as
Level Premium Whole Life Insurance – The premium is fixed for the entire tenure
Limited Payment Whole Life Insurance – The premium is to be paid for a limited period fixed during the issuance of policy
Single Premium Whole Life Insurance – The premium is to be paid one time lump sum during the start of the policy.
Some of the Whole Life Insurance Plans are:
- ICICI Prudential Whole Life
- Max Life Whole Life Super
- IDBI Federal Life Insurance Whole Life Savings Insurance Plan
- SbI Life Subh Nivesh
- LIC Whole Life Policy
What is the difference between term and whole life insurance policies?
The basic difference between term insurance and whole life insurance is in the tenure of the insurance. Term insurance is covered for a fixed tenure such as 10 years, 20 years, 30 years as set during the policy issue. The whole life insurance is covered for tenure of whole life usually up to 100 years age. If the policy holder is alive up to the maximum age benefits of the insurance will be paid to the policy holder.
The partial premium of whole life insurance is invested to increase your money. If the insurance company profits they may announce dividend or bonus to be paid to you. There is no such maturity benefit is available for term insurance policy. The nominee or beneficiary of policyholder will get only death benefit in case of term insurance.
The premium is constant throughout the policy tenure for whole life insurance policies. You can have different premiums every year in case of term insurance plans when you want to renew the plan.
You can get loan facility from whole life insurance plans whereas term insurance cannot give you the benefit of taking loan against the insurance.
The premium for term insurance is less than the premium of a whole life insurance plan with same amount of life coverage.
The premium paid towards the both type of insurances can be claimed as tax benefit under section 80C of income tax act. The death benefit is totally tax free in the hands of nominee or beneficiaries.
Should you buy Term or Whole Life Insurance?
As the premium of term insurance is less than the whole life insurance plans you have to spend less for buying a term insurance plans. The whole life plans can give you a benefit of insurance coverage as well as return on investment.
It is always advised not to mix the insurance with investment. It is better to keep separate the insurance and investment. A pure term insurance can give you the benefit the life cover and secure your family’s financial future in your absence.
If your age is around 20-30 years the premium for a term insurance policy is much less. You can get a term insurance of Rs1 Cr with a premium of Rs 6000-8000 yearly (Considering 25-28 years age with no smoking and drinking habit). If your age is more such 40-50 years and you have much to ensure towards your family you can think of whole life policies. You may have to call for cost benefit analysis while selecting the plan. You can also read my article on term insurance to know more.
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