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Term Insurance vs. Life Insurance

  • 17th Dec 2018
  • 526
Term Insurance vs. Life Insurance

We lead hectic lives today and the cost of living is skyrocketing by the day. Insurance policies come as a blessing as they ensure that the policyholder's family is secured for the future in the unfortunate event of the policyholder's death. Accidents or other calamities do not come with a warning. It is not in our hands to be able to avoid them or deal with them. However, what is in our hands is how we ensure that our family deals with the aftermath of it. Gone are the days when people thought that insurance was not necessary. Today, it is necessary; not for you but for your loved ones. Losing a loved one may be unfathomable but in case it happens, at least the financial part of the burden is taken care of by the insurance policy.

Life insurance policies can be of two types - whole life insurance policy and term insurance policy. There has always been a debate about term insurance vs. life insurance. The most important question that you may be concerned about is that should you buy term or whole life insurance? It is important to understand the features, benefits, and differences between both of them before making a decision on which to pick.

What is term insurance?

As the name suggests, a term insurance policy is a policy, which is valid for a specific period of time (term). This insurance offers death benefit to the beneficiary in case of the death of the policyholder. However, if the policyholder survives, the entire term of the insurance, this policy is useless. It does not offer any maturity benefit, so you will not get any money after the policy matures. You have to forget the amount paid as premium. You will get no returns on them. One of the main advantages of the term insurance policy is that the premium is not too high. Hence, this policy attracts many young buyers who are just starting their careers and have a lot of financial responsibilities and milestones to achieve in life. The later you opt for a term insurance policy, the more you need to pay as premium. The increasing premiums, as well as the no maturity benefit feature, are the factors that make consumers hesitate before opting for this type of insurance, especially if they are looking for something long term.

What is whole life insurance?

A whole life insurance policy is also known as a permanent insurance policy. You will have to pay a higher premium as compared to the premium of a term insurance plan. The advantage here is that the premium amount is fixed. In addition, along with the death benefit, you also get income benefit, as the cash amount that is accumulated over time is exempt from taxes. This amount can be used at the discretion of the owner of the policy. You could use this amount for retirement planning or for paying the future premiums of your insurance. If you are in your late 30s or above 40, it is recommended that you go for whole life insurance, as you may have more responsibility towards your family such as children's education. You will need higher financial security. As the premium is quite high, many people think twice before choosing this insurance.

Term insurance vs. life insurance

There are a large number of insurance providers in the market, no matter which type of insurance you are looking to purchase. So, should you buy term or whole life insurance? If you opt for term insurance, your premiums will be lower but no maturity benefit can be availed. You can choose it for a fixed term. In case of whole life insurance, your premium is higher, you can get maturity benefit, you get tax benefit on the accumulated amount, and you can choose the policy tenure until you turn 100 years old. Consider factors like your age, financial assets, liabilities, and the main purpose of the insurance. For example, a youngster in his early twenties could initially opt for a term insurance plan to save on premium amount in his early years and then go for a whole life insurance plan after a few years when his responsibilities increase.

The term Insurance vs. life Insurance debate can go on. There is no right or wrong answer to the question - should you buy term or whole life insurance? No matter which type of insurance you choose, ensure that you do your homework well and understand what both of these insurance policies include and exclude. Comparing policies online can actually help understand what is available and what suits you the best. Life insurance policy is very subjective to your personal requirements; hence, study the available insurers well and make an informed decision by keeping your personal necessities in mind.

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