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Term Insurance 273 views January 22, 2019
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Making the right choice of life insurance is not easy, especially, as life insurance companies in India have a wide range of plans catering to every need and section of society. However, many customers find it difficult to distinguish between some of the life insurance policies that have similar features and benefits. This can be rightly said about term insurance plans and whole life insurance policies that are bought to secure against possible financial distress in the event of sudden death.
Policyholders looking for a pure insurance cover at nominal prices prefer to buy term insurance. Buying a term insurance plan is equivalent to paying for a life insurance cover that secures coverage for a limited period of time. This means that in the event of the sudden death of the policyholder, the nominee(s) is entitled to the predetermined amount of sum assured. However, if the policyholder outlives the policy period, then the insurance company is not liable to pay anything to the nominee. However, some life insurance companies in India are now offering a different kind of life term insurance policy and plans in which the policyholder gets back the amount paid as premiums towards securing the term insurance cover.
The premiums paid towards term insurance plans are the lowest. This may be attributed to the fact that term insurance includes no investment component. This means that the entire premium that one pays goes towards covering the risk factor. Dubbed as the purest form of life insurance cover, term life insurance is deemed as an essential element of financial planning.
The uncertainty of life needs to be guarded against with something that is certain and fixed. Term insurance with its sureshot advantage of death benefits serves the purpose as it ensures a life cover at nominal prices. While the grief owing to loss stemming from sudden death cannot be alleviated, life insurance companies help to assuage the pain by having in place a term insurance cover that makes up for the loss of income due to the sudden death of the policyholder.
Moreover, policyholders buying term insurance plans determine the sum assured by taking into consideration the value of their current loans, potential liabilities in future like children’s loans, nature and value of their assets coupled with the extent of their liquidity, current income, inflation rate, etc. This means that with a term life insurance policy in hand, policyholders can ensure that the standard of living of their loved ones is not adversely affected in the long run.
Some of the best term insurance plans in India include:-
While buying the policy, customers have to choose the extent of their policy tenure. This is because term policies cover only for the certain period specified in the policy proposal. This also means that the nominees receive nothing as the policyholders outlive the policy period.
Term Life Insurance In A Nutshell
|1. Promises death benefits only|
|2. The insurance company disburses death benefits to the nominee only if the policyholder dies during the policy period|
|3. The purest form of life cover available at nominal premium charges|
|4. Can be bought for limited policy periods as specified by the insurance company|
|5. Best when bought early as premium charges are more for policyholders who buy at a later stage|
|6. Scope of term insurance renewal exists if the policyholder wants an extended coverage beyond the prior policy period|
|7. A necessary inclusion in one’s investment portfolio|
|8. Can be converted to whole life insurance|
Whole life insurance is similar to term life insurance in terms of risk cover though the difference lies in the extent of the policy period chosen. Akin to a prolonged financial investment plan, this kind of life insurance ensures coverage for the entire life of the policyholder. This means that irrespective of the age at which the policyholder dies, the nominee(s) are assured of the predetermined amount of death benefits. However, these plans come with an age ceiling limit of up to 100 years.
If it is about ensuring death benefits to nominees in the future, then nothing works better than whole life insurance. These policies by allowing their customers to be covered for their entire lives in lieu of regular premium payments are the perfect solution to any possible financial distress in the future. Though the premiums are higher than what one pays on term life insurance policies, they are still nominal in terms of the benefits that they offer. Whole life insurance plans are usually bought by people looking to create a legacy for their loved ones while also simultaneously interested to earn bonuses and loyalty additions on their premiums, thus, making them worthwhile.
Some of the best whole life insurance plans in India include:-
Every good thing has a flip side to it. This stands true for whole life insurance policies too. While buying whole life insurance plans, it is important to keep in mind that:
1)Higher premiums may cause some people to stop paying them halfway, thus, disrupting the plans’ continuity and causing them to lapse
2)Since premium charges are high, there is a greater chance of customers opting for lower sum assured to save on the premium charges, thus, aggravating the chances of policyholders remaining underinsured.
3)Compared to other investment options, paying for whole life insurance plans does not fetch much returns. Customers buying whole life plans to create wealth may be in for a shock as the returns on these plans are much lower than what one earns on other investment options.
Whole Life Insurance In A Nutshell
|1. Covers the policyholders for their entire lives|
|2. In addition to death benefits, it helps policyholders in legacy creation through the accumulation of cash benefits and bonuses|
|3. Insurance companies require their customers to undergo a detailed health examination before issuing these policies|
|4. Loyalty additions and bonuses coupled within premiums add up to a decent amount at the end of 12-15 years|
|5. The amount received on the policyholder’s amount is big enough to be invested in real estate or property|
|6. The cash value received at the end may be comparable to one’s expected returns on investment (ROI)|
|7. The policyholder is allowed to draw some amount midway from the policy|
|8. These policies can be used as collateral to seek loans from banks|
|9. Premium charges are higher than term insurance plans. However, the returns earned on the policy justify the premium charges paid over the entire policy period|
A look at the following table will ensure a better understanding of how term insurance differs from whole life insurance.
|S.No.||Features and Benefits||Term Life Insurance||Whole Life Insurance|
|1.||Choice of Policy Tenure||The policy period is predetermined at the time of purchase and differs from one company to another||These plans cover the policyholders for their entire lives though some plans limit the policy period to 100 years|
|2.||Insurance Cover Availability||Policyholders are covered only for the policy period||The policyholders are covered for their entire lives barring in some plans that allow their customers an insurance cover till they reach 100 years of age|
|3.||Premium Flexibility||Premium rates are fixed over the entire policy period though some companies allow their customers the benefits of paying limited premiums too||Premiums are constant and have to be paid throughout life|
|4.||Premium Charges||Premium rates are low in most term insurance plans.||The premium charges are higher compared to term life insurance policies|
|5.||Death Benefits At The End Of The Policy Period||The nominees receive the death benefits provided the policyholder dies within the policy period||Since these plans cover for the entire lives of the policyholders, the death benefits are guaranteed to the dependents|
|6.||Bonus or loyalty additions to the plan||These plans are pure risk covers and do not involve added bonuses to the predetermined death benefits amount||Policyholders benefit from the bonuses added each year or the loyalty additions to the plan throughout the entire policy period|
|7.||Surrender Value Availability||Not on all term plans except single premium plans and those offering limited premium payment benefit||Surrender value is available on all whole life insurance policies|
|8.||Loan Availability||Policyholders cannot avail loan on the term plans bought||Banks accept whole life insurance policies as collaterals before giving loans|
Other than the promise of life insurance cover in both term policies and whole life insurance plans, these plans are similar in the sense that both the kinds of plans allow the scope of enhanced cover through riders. This means that policyholders can ensure a greater and more comprehensive cover by making their choice of riders and paying over and above the basic premium charges.
When it comes to choosing a plan that ensures security in the long run, one would like to buy only the plan which suits their needs and is in sync with the budget. Though customers know and understand the difference between term insurance and whole life insurance based on prima facie details, making the right choice of plan can be done only after taking into account certain necessary factors and intent behind buying the plan. Customers can also opt to buy term insurance plans in their early twenties or thirties and then get the same converted to whole life insurance policies. Doing so can help save on the high premium charges that customers have to otherwise pay on whole life policies.
Those with the primary goal to leave behind an adequate amount to ensure that their loved ones continue to live their lives unbridled sans the stress of financial scarcity may opt for term insurance. However, there are others looking for life insurance plans that do not expire and are bought in a bid to create wealth to meet unforeseen contingencies in the future. In addition, they may be inclined to withdraw money or surrender the policy midway. Whole life insurance plans suit these customers best.
Policyholders must consider the following factors while looking to choose between term life insurance plans and whole life insurance policies. These include:-
– Age of the policyholder
– Existing health conditions of the policyholder
– Current and potential financial needs of the family members
– Potential liabilities of one’s dependents or loved ones
– The age group that one’s dependents or nominees fall in
– Long-term health expenses in the family (Mostly done in case of aged dependents or anyone suffering from critical disorders)
– Value of current mortgage
– Early retirement plans
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