Whenever we plan to buy an insurance plan, we come across several confusions and one of the most common confusion is, “which type of insurance is suitable for me and my family”.
First of all, it’s completely depended on what is your requirement and what you want from the life insurance and secondly, it depends on how much money you are willing to spend each year on insurance plans.
There are several types of life insurance plans, which we take but among the list, two are very famous – term life insurance and whole life insurance also known as permanent life insurance.
Let’s learn step by step the differences between these two plans:
Term life insurance can only be purchased for a specific time, be it 5, 10, 15 or 30 years (or more) whereas the whole life insurance covers your whole life as the name suggests or till the maturity date.
#2 Cash Benefits/Value
In term insurance plan, the cash benefit is available only if the insured person dies while the term of the policy in effect, means, before the maturity date. Post maturity date, no cash benefit is given to the person/family as this insurance only aims to protect the family till the policy in effect.
But in whole life insurance, there is a certain amount (depends on the current market value of the insurance you bought) which gets paid post-maturity with adding some interest in it (depends on the company’s policy).
If the insured person dies before the maturity date, his/her family gets paid the whole insured amount (like the term insurance plan).
Premiums are nothing but the amount you pay monthly, quarterly, half-yearly or yearly to the insurance company against the insurance.
In term life insurance, the premium amount is very less as compared to whole life insurance.
The main reason here is, in the term life insurance plan, the insurance companies aren’t bound to pay a single penny if you (insured person) don’t die.
But in whole life insurance, the premium rates are comparatively high as the company has to pay the sum after maturity.
In other words, it can be understood that the premiums in whole life insurance are nothing but installments against the insurance amount and once the installments complete, the company pays back to the user adding some interest.
In short, the term insurance plans are very affordable to buy but it doesn’t provide any cash value after maturity but whole life insurance are costly to buy but it does provide cash value after maturity.
#4 Best time to Buy
First of all, there is no any fixed time to buy a life insurance. Few experts advise buying a life insurance just after birth.
However, comparing term and whole life insurance, one thing is clear, the sooner you buy an insurance plan, the Affordable premiums you get in term life insurance. But the same concept doesn’t actually apply to the whole life insurance.
In term life insurance, the insurance becomes expensive with increasing age especially after 50. But in whole life insurance, it remains almost same (most of the time).
#5 Flexibility to Convert
In term insurance plan, you get the flexibility of upgrading it into the whole life insurance but the same facility is not available with the whole life insurance, means you can not change it into the term life insurance plan.
#6 Health Checkup
In both insurances, a health checkup is necessary before buying insurance but in some cases of whole life insurance, company ignores it for higher paying insurance plans.
#7 Other benefits
A person with term insurance plan can not take loan showing the insurance plan but loan can be issued against whole life insurance plan.
And the simple reason behind this is, term life insurance has no cash value and only provides cash benefit when the person dies and that too before the maturity.
But in whole life insurance, there is a surety of cash benefit regardless of any condition.
The amount of loan is completely depended on the bank.
Another most important thing is, whole life insurance plan may seem little expensive at the starting but eventually it comes with cash benefits and several other benefits, which goes missing with term insurance plan.
Which Insurance Plan is For You
Now, after reading everything you must have understood the different between these two types of insurance plan but the main question here is, which one is suitable for you.
Choosing an insurance plan depends on several factors:
- What’s the Purpose – If you solely want to buy a protection plan for your family, go with term insurance plan but if you want some other benefits life cash benefits and also want some amount upon maturity then surely go with the whole life insurance plan.
- How much you are willing to spend on insurance plan – if you have no issue in investing more money at a time, you can go with whole life insurance but if you have limited investment or less investment, go with term life insurance.
- Whether you want tax benefits – Both types of life insurance provide tax benefits but in term plan, the tax benefit is comparatively lesser than the whole life plan.
Word of Advice:
Never go blindly with what the insurance agents say, as their sole motto is to make a profit from your investment. Do a research before opting any and take help from others in order to understand policies.
If you have no other option than understanding the plan from an agent, then talk to multiple agents and understand same plan to make your concept clear in every aspect.
Remember, it’s your money and your life, so never let others decide what’s good or bad. But do take suggestions and think accordingly and then decide by yourself.