Youngs like you are at a very important point in their lives. When you start a job, you think of savings, families and making plans for the future. We have already discussed life insurance which is like an endowment policy offered by many insurance companies and usually LIC.
Life insurance might be the first thing that comes to mind, but it’s not a smart thing to think about, especially if you have dependents (family) on your income.
But because there are so many choices, it can be hard to pick the right type of insurance. This post goes into great detail about two common options: term life insurance and whole life insurance.
It will help you understand the main differences between them so you can make a choice that fits your needs and budget.
It’s also advisable to seek advice from experts and agents before buying a plan.
Term Life Insurance: Life Protection only
Term life insurance is only meant to protect you and pays to your nominee after your death. You pay a fee for a certain amount of time, usually 10, 20, or 30 years or as long as the policy is active. Your beneficiaries will get a death benefit if you die during the term. This can help them keep their finances stable.
Suppose, you take term life insurance till the age of 85 years and payment period for 10,20.30 or whatever you choose.
You will get covered up to 85 years of age and something happens to you, the nominee or beneficiary gets the insured amount to protect your family member in your absence.
But, the condition is that you won’t get any cash value after 85 years of age. Even if policy terms lapsed means you die after 85 years, nothing will be paid to your family member.
Why you should get term life insurance
1. Affordability: It costs very less as compared to other life insurance plans in the market. As your family member will get a big lump sum amount after your death, there is no cash value component that an insurer has to pay you.
Therefore, Term life insurance has a much cheaper cost than whole life insurance and covers a larger death benefit. Because of this, it’s a good choice for you who may not have a lot of extra money. It costs even less if bought at an early age of 22-24 years.
2. Flexibility: In this, it is very flexible to choose for how much period you want to insure. In this case, if you are young around 24-25 and life expectancy is around 70 years, you can invest accordingly and calculate the premium based on your financial plannings and tax benefit.
3. No Hassle with Cash Value: Term life insurance is easy to understand. You pay a premium monthly or yearly and also choose a payment period. If you die, your family gets a lump sum amount to avoid any financial burden in your absence. There are very few riders so go through terms and conditions before purchase of any term insurance.
Only Drawback is no cash value and payment is received by your family after your death.
Whole Life Insurance: Building Cash Value Alongside Protection
Whole life insurance protects you and helps you build wealth at the same time. It’s like a life long insurance policy that covers you till the age of 99 or 100 years. Plus you get the investment benefit in many forms.
As per IRDAI definitions, If a life insurance policy, does not have a definite policy term and the policy terminates on death of the life assured or provides coverage at least up to attainment of age 80 years, it shall be categorized as Whole Life policy.
It is a long term insurance plan which also provides investment benefits on your premium. Whole life insurance plans also build up a cash value over time. You can get to this cash value by taking out loans subject to the terms and conditions of the insurance.
Why should get whole life insurance
1. Lifetime Coverage: Insurers provide many benefits under this policy. Like you are covered for your whole life i.e., 99 or 100 years.
2. Cash Value Accumulation: The cash value in your whole life policy can grow over time, giving you a possible source of funds for emergencies or long-term financial goals.
You get a lump sum amount after maturity keeping coverage for your whole life. You can also avail loan on policy documents.
3. Low premium: Premium remains the same for the whole policy period. You can also choose higher premiums too for better benefits. You can discuss benefits and terms and conditions with your insurer before buying it.
Only drawback is too many riders or terms and conditions, and coverage is for whole life.
What’s best for you will rely on financial goals, risk parameters, investment strategies, how much money you have, and how much you want to invest or save for the future. To help you decide, here’s a quick list:
- Term life insurance is best for you if you are young and don’t have a lot of money.
- Your main goal is to protect the finances of the people who count on you during a certain time, like when you’re raising young children or paying off a debt.
- Whole life insurance is the best choice if you want peace of mind and security for your whole life. Building cash value and protecting your whole life are both important to you.
Conclusion
You can compare various plans on policybazaar.com (i am not sponsoring it, but found it helpful to compare different insurance plans).
I would recommend having a meeting with a financial expert to help you figure out what kind of life insurance you need and suggest the best plan for you. Get quotes from a number of different insurance companies to find the best deal on coverage and price.
Compare different Insurance according to your needs (not sponsored)
