Buying a life insurance policy to secure the monetary future of your loved ones is an important responsibility. However, it can be tricky to choose the right plan, as there are many options. Figuring out the differences between a term insurance policy and a whole life insurance plan can be confusing.
Choosing your plan depends on your budget and the kind of financial security you want for your family. We have explained these life insurance policies in detail so that it is simpler for you to decide which plan is more suitable for your specific needs.
What is a term life insurance policy?
If you are not sure about what is term insurance, consider it as an affordable tool to ensure that your family lives a comfortable life in your absence. The policy does not offer any maturity benefits, making it cost-effective, as the insurer only pays the sum assured to the nominees if the policyholder’s dies during the term plan’s period. The policy stays active for a limited duration and does not pay any amount if the policyholder survives the tenure.
What is a whole life insurance policy?
It is a type of life insurance policy that offers cover for the policyholder’s entire life. The tenure can be until the age of 100 if you continue to pay the premium. The insurer pays the death benefit if anything unfortunate happens during that period. Along with this, a whole life policy includes a savings option. If you discontinue the plan, the insurance provider will offer you a lump sum.
The two policies differ in many aspects. Here are a few points that will help you give a better understanding:
- A term plan comes at a lower premium as compared to a whole life insurance policy
- A term plan’s premium may change in case of renewal of the policy’s period. For whole life plans, the premium stays the same
- The insurer does not return the premium paid by you in a pure term plan. On the other hand, if you survive the tenure of a whole life plan, the insurance company may refund the premium
- A term policy stays active for a fixed period, depending on the tenure you choose when purchasing the plan
- The whole life policy tenure is generally until you turn 100 years of age. If you survive the period, the insurance provider offers a maturity benefit
- Cash value
- A term plan only offers a death benefit. The whole life insurance plan provides you with an investment opportunity. The insurer invests a portion of your premium in different funds to generate income, which they offer you as returns
- A whole life insurance policy offers a loan option. You can opt for a loan from your policy’s cash value for a low interest. The insurer deducts this amount from the plan’s sum assured. A term insurance policy does not have this benefit
- A term plan only offers a death benefit, as it is a pure life policy. Conversely, a whole life plan offers additional returns through investment along with protection against the risk of death
Which plan to select
Choosing a suitable life insurance policy depends on your needs and your age. If you are a single, young person, opting for the term plan may suit you more. It will ensure that in your absence, your dependent parents will have the financial protection they require. If you are married with children, consider buying a combination of both policies. This way, you will remain safeguarded throughout different stages of life.
If you plan to purchase term insurance plans in India, consider the different available policies based on the premium and benefits to find the most appropriate one.