Know the difference between term insurance and whole life insurance: Which one is more beneficial?

Nowadays people understand the importance of insurance policies. But they are still in the dark about different types of policies. As a result, unscrupulous agents sometime mis-sell policies. To prevent mis-selling, we must know different types of policies. In this article, the author discusses two different types of policies, viz., term insurance and whole life insurance.

Nobody knows about the future. We don't know what would happen tomorrow or after ten years. What would happen to us, to our near and dear ones? Although we don't know the future, we have to prepare for any eventuality. We have to make a plan to financially secure the future of our near and dear ones. Here insurance comes into the picture. Insurance is not an investment vehicle, it provides a protective umbrella in case of any mishappening.

Fortunately, more and more people are being able to understand the importance of insurance in protecting the financial future of their dependents, but still now most of them are not clear about choosing the insurance policy according to their specific needs. They don't understand the jargons being used by the insurance agents, fall in the trap of dishonest agents, don't go through the fine prints and end up purchasing insurance policies which are not suitable for their needs. So, it is very much necessary to understand different types of insurance policies. In this article, we are going to discuss two different types of insurance policies, term insurance and whole life insurance. We will see which one is more for us.

What is term insurance?

Term insurance plan is a type of life cover. It provides cover for a pre-defined period of time, and if the insured expires during the term of the policy then death benefit is payable to the nominee. Term plans are specifically designed to secure the financial needs of the policyholders family in case of death or other pre-defined problems. Term insurance is taken for 5 years, 10 years, 15 years, 20 years or for similar periods. In case of death of the policy-holder during this period, the insurance company pays the policy amount to the nominee. If the policy-holder survives the policy period, he or his nominee doesn't receive any amount from the insurance company.

What is whole life insurance plan?

Whole life insurance is a type of life insurance contract which provides insurance cover to the policy-holder for his entire life. After the death of the policyholder, the insurance payment is made to the policyholder's nominee. This type of policies includes a savings component, which accumulates cash value, which is paid to the policyholder or his nominee on completion of the tenure/in case of demise of the policyholder.

Which one is more beneficial for you?

In case of term insurance, the premium is very less compared to whole life insurance. The early the policy is taken, the less would be the premium. Secondly, the sum assured in term insurance is much more than the sum assured in whole life insurance for similar premium. Term insurance is excellent for fulfilling the financial needs of the family members of the policy-holder in case of his unfortunate demise during the tenure of the policy. But if the policy-holder survives the tenure of the policy, he will not receive any amount. On the other hand, in case of whole life insurance, the nominee of the policy-holder will definitely receive an amount. However, the amount is meagre and may not be sufficient to fulfil the financial needs of the family members.

Final advice

In case of term insurance, the premium is less and in case of demise of the policyholder, the amount received by the nominee can meet the financial needs of the family members. But in case of term insurance, the commission for the agent is negligible. So, the agents discourage people to take term insurance. They stress upon the fact that in case of whole life insurance, the policy-holder or the nominee would get some amount after the tenure/in case of death of the policyholder. They don't mention the higher rate of premium or the meagre amount which is received after the tenure would not be sufficient.

So, before taking the policy, everyone must understand the conditions and end benefits of these two types of policy. This would prevent mis-selling of policy by the unscrupulous agents.

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