Why choosing Term Life Insurance is more sensible than opting for Whole Life Insurance?
Term Insurance or Whole Life Insurance – which one to opt for? This question must have crossed your mind at least once. Although both are forms of life insurance, this question has been debatable for a long time as people have different perceptions and preferences. And Shruti had a similar confusion regarding both.
Shruti Singh has just started her career in content writing as a freelancer. She is 25 and wants to start investing in financial products that could help her with a financially secure future while offering several other benefits like tax benefits. However, when discussed with her friends, some suggested that she opt for term insurance and asked her to invest in whole life insurance. To sort out her and the confusion of many others, let’s try to know and understand term insurance and whole life insurance in detail.
Term life and whole life are both life insurance. As the name suggests, Term insurance policies remain active for a specific time period or term and do not offer any maturity benefit if the policyholder outlives the policy tenure. Whereas, Whole life insurance policies remain in effect throughout the entire life of the policyholder. There is no specific time period for the policy to end. Going by the definition, although the whole life insurance might sound more lucrative; however, there are certain reasons that make term insurance a better option for most people.
But let’s also understand the importance of life insurance policies.
Importance of owning a life insurance policy.
The importance of life insurance in today’s age is inevitable, and here are the reasons.
- Life insurance secures the insured’s family financially in case of his or her untimely demise.
- Life insurance helps in accumulating funds for children’s education and fulfilling other requirements.
- It builds a corpus to manage the post-retirement days
- Life Insurance creates an extra income when your regular income decreases owing to serious illness/ accident.
- It helps in maintaining a comfortable lifestyle and supports during other financial emergencies.
However, some form of life insurance only provides a death benefit, and others come with an incorporated savings element. Therefore, you should first assess your requirements and then opt for the right kind of life insurance for yourself and your family.
Why is term insurance a more viable option than whole life insurance?
- Term life insurance is affordable
Term life insurance is affordable and less expensive than whole life insurance against the high sum assured it offers. However, for such a high coverage amount, the premium rates for whole life insurance can be as much as five to 15 times higher compared to term insurance. Whereas the premium price for term life insurance can be as low as a few hundred a month, ensuring an affordable lifetime coverage option.
- Majority of people usually do not require insurance for a lifetime
As mentioned above, people have their own perceptions and preferences while choosing financial products. Similarly, in the case of certain people who believe paying high premiums for whole life insurance is justified due to the long-term coverage it provides, the death benefit amount is paid out, which is not the case regarding term life insurance plans. But most people don’t require insurance coverage for their entire lifetime. Moreover, because at some point their liability ends, their children grow up, home loans get paid off, and people do not remain dependent on their paycheck as they have saved for their retirement. Thus, there might be little use of a large life insurance cover in such a scenario, and investing your hard-earned money in financial products like whole life insurance could be a waste or unaffordable.
- Other financial products often provide a better return than whole life insurance
The reason for whole life insurance is expensive compared to term life insurance is its investment component. Whole life insurance accumulates cash value, and thus its premiums are on the higher side than what is required only insurance coverage. Moreover, retrieving money from the whole life insurance could include surrendering the insurance coverage or borrowing against the policy. This could involve high fees with cashing out; specifically, it is done at an early stage. Even in terms of term life insurance with a return of premium, the policyholder is guaranteed maturity benefit at a much lower premium rate while providing a good return on investment.
The moral of the write-up is that term life insurance provides comprehensive financial coverage during an uncertain time at much cheaper rates than other forms of insurance coverage. Therefore, one should definitely opt for a term insurance plan based on their requirements and affordability. To know more about term insurance, one can visit iiflinsurance.com, compare various term plans available in the market from the top insurers and make the right buying decision.
