Purchasing life insurance is a good protection and could be a sound investment opportunity and especially when you are the sole or one of the earning members of your family and if your death is going to leave somebody in a financial lurch.
Life insurance is of two types – term insurance and whole life insurance. People are often are in a dilemma which one to opt. Here, are some basics of both types of life insurance so that you can make informed decision.
Term insurance
Term insurance purely consists of insurance protection, which pays a predetermined sum if the insured dies during a specified period of time. On the death of the insured, term insurance pays the face value of the policy to the named beneficiary. All premiums are used to cover the cost of insurance protection.
The term or the time period may be one, five, ten, twenty years or longer. But, unless renewed, the insurance coverage ends when the term of the policy expires and becomes worthless. Since this is temporary insurance coverage it is the least expensive to acquire.
Main features of life insurance include temporary insurance protection, low cost, low cash value, usually renewal and sometimes convertible to permanent life insurance.
One of the major advantages of term insurance plans is tax benefits it brings under section 80C and 10(10D).
There are numerous types of term insurance plans available in the market including standard term insurance plans, convertible term life insurance plans and group term life insurance plans.
Whole life insurance
Whole life insurance plan is a product that offers protection over the insured’s entire lifetime. It is aimed to create fund for the heirs of the policyholder as it provides for payment of sum assured plus bonuses on the death of the policyholder. In other words, whole life insurance provides not only protection cover to the policyholder but also an investment opportunity.
It charges fixed periodic premiums computed on the assumption that the policyholder can retain the policy for the life of the insured. The death benefit remains same throughout the lifetime of the contract.
Insurers invented the level premium concept to make the whole life contract affordable for as long as the policyholder decided to keep it. It is one of the reasons that whole life insurance is also called permanent life insurance.
The main features of whole life insurance plans include permanent insurance cover, build cash value, allows for loans to be drawn against the policy, level premiums.
Compare both on the following parameters:-
Longevity: Whole life insurance has a greater lifetime than term life insurance and is not required to be renewed.
Expense: Whole life generally is more expensive than a term insurance.
Dividends: Whole life provides continuous dividends unlike term insurance which can be claimed only once at the time of expiry of the policy. However, dividends of whole life insurance remain constant.
As both have there own benefits, so, depending on the person’s situation one should opt for term insurance or whole life. However, ideally a young person should opt for term insurance as they have little cash with them and it is cheaper. And if you are little older you can opt for whole life insurance, as it provides you the opportunity to invest and protect at the same time and it allows you to protect your beneficiaries by leaving behind a good sum of financial help .....moneycontrol.com
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