In life, it is those little moments we spend with our loved ones that give us the most happiness. However, these moments can be interrupted with any unforeseen eventuality that cuts your life short and leaves your family high and dry.
That’s why getting life insurance is the first crucial step that you must take towards securing a sustainable financial future for your loved ones.
Plus, life insurance plans are affordable, which implies that you can prepare for future contingencies without upsetting your current financial goals.
Both term insurance and whole life insurance will play a pivotal role in your financial planning. However, there are certain distinctive features and benefits of each category of insurance plans that you must know.
Term Insurance
Term insurance is necessarily a pure-life insurance plan, wherein you pay a fixed amount for a specific period to avail a life cover for yourself.
In case, there is an eventuality during the policy tenure, the proceeds from the plan would be disbursed to your nominee in the form of death benefits.
Overall, some of the best term insurance plans from reputable insurers such as Max Life Insurance are low-premium, fixed-tenure insurance policies that avail a high sum assured to your beneficiary, in case of your demise. However, there are no maturity or survival benefits associated with term plans.
Further, these plans also offer flexibility regarding choosing the policy tenure and the sum assured. Therefore, if you are looking at insurance plans as investment or saving instruments, then term insurance will not be a good option for you.
Whole life insurance
As the name suggests, whole life insurance plans provide comprehensive life cover packages that offer both flexibility in selecting the policy attributes and survival and maturity benefits (depending on the type of policy purchased).
Also, these policies may collect the premium throughout the life of the insured or for a specific tenure. That said, whole life insurance policies are meant to provide life cover to you throughout your entire lifetime.
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Difference between Term and Whole Life Policies
Premium
- Term insurance policies usually have lower premiums than whole life insurance policies.
- Premium remains constant throughout the policy period under both whole life plans and term insurance plans.
Tenure
- Term plans offer fixed policy tenures, during which, you are eligible to avail all policy benefits.
- Whole life insurance plans have flexible tenures, which are usually applicable till the age of 100 years. Benefits will be paid out once the insured turns 100.
Cash value
- The premiums paid under whole life terms are invested in your life protection fund along with other investment avenues. In case, the insurer makes a profit on these investments; they announce a bonus, which you receive. Term insurance plans don’t have this feature.
- The cash value built through your whole life plan’s premiums can be leveraged to avail loans at low-interest rates. While the base loan amount is taken from your sum assured, the interest is collected by the insurer. Term plans do not offer this benefit.
Whole life plans can act as both protection and savings plans while term plans are a form of pure life insurance plan that offers no additional benefits, except for death benefits.
So, What Should You Choose?
In general, if you are unmarried and in your 20s or 30s, buying a term plan would be the best option for you. Term plans will offer you significant life cover protection for viable premium payments.
If you are married and have children, you can opt for a mix of term and whole life insurance. While the whole insurance plan can offer you the benefit of cash value, which would be useful at various points of your life, having a term plan will help protect your dependents with significant financial benefits.
If you are over the age of 40, you can go for a whole life plan. The plan will be available throughout your life and would be effectively cheaper than a term plan, especially at this stage of your life.
Also, you can choose to add some of the best short-term investment plans in your portfolio to help maximise your savings. Together with these investments and a term/whole life insurance plan, you can create wealth shortly while securing your family’s future in the long-term.
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