If you want to secure the future of your children and spouse, life insurance will be an essential element of financial planning. It will also give them financial independence during an unforeseen event, or give wings to their dreams. In short, life insurance offers risk cover so that your family can continue living a happy and fulfilled life even after you.
Life insurance is divided into two main categories—whole life insurance and term insurance. Let us understand which of the two is better.
Whole life insurance
Also known as permanent insurance, this is a kind of insurance that gives life-long coverage. The premiums are higher as compared to a term insurance policy. A whole life policy also has something known as a cash value feature that acts as a tool for investment.
Here, after a certain period of time into your policy, you will be able to withdraw money that has accumulated in the form of premiums. However, this money needs to be deposited back or else the death benefit of your policy reduces drastically. Therefore, in a nutshell, permanent insurance offers you financial backing as well as life protection.
A term plan is an insurance policy that comes with a set time frame. As per the rules of this policy, the beneficiary gets the death benefit should you pass away while the policy is still functional. However, if you live to see the policy mature, then no benefit is received by either the nominee or you as the insured. This is purely a protection plan and doesn’t have an element of investment to it.
Taking a look at the pros and cons of each would help us decide which of these two insurance plans is better.
Whole life insurance
Protects you for life
A whole life insurance lasts for as long as the premiums are paid. This insurance, therefore, may survive for as long as you do. Thus, the death benefit will be much higher, ensuring a good financial backup for your loved ones.
Makes savings a habit
Since a life protection policy needs you to make regular premium payments, this kind of policy inculcates the healthy habit of saving.
Gives returns on your investments
A life protection policy comes with a cash value feature, wherein you may borrow from your policy after a certain period of time. Also, depending on your insurance plan and the current market scenario, you may stand a chance of earning dividends. Therefore, this policy serves as a great investment tool.
A life protection plan is known for its notoriously high initial premiums than a term insurance. This makes it a poor choice for someone who doesn’t have a very high insurance budget. It is advisable for someone as old as 25 years to invest in a term insurance plan that can be later converted to a whole life insurance to save on the initial premium amount.
Value for money
One of the benefits of term insurance is that its premiums are affordable and therefore it may be purchased in large sums. This ensures that the policy gives you complete value for money.
Much needed coverage
A term plan covers you at the time when you most need it. This is one of the important term insurance benefits. For example, if you have education expenses for your children or mortgage to pay off, the lump sum amount received from a term plan will support your loved ones financially in your absence. On the other end, once you no longer have any dependents, you could discontinue your term plan. Thus, a term plan protects your loved ones when they need it the most.
You may outlive your policy
Due to its shorter time frame, you may end up outliving the tenure of your policy. Therefore, selecting a policy with a longer tenure will be a wise thing to do. Aegon’s iTerm Plus Insurance plan offers you coverage up till the age of 80 years, thus making it an ideal term plan to invest in.
Assess your needs as well as the pros and cons of a term plan and life insurance plan. Only this would help you make a better decision on which policy to select.