Slowly people in India have also started understanding the value around insurance. Don’t ever get confused by treating insurance with the regular investment on the same plane of reference. One should understand that though both are necessary component of one’s financial plan and both are important for staying financially prudent but going by the real definition, insurance is related to building financial protection and investment is meant to help you grow your money.
Now when the objective is primarily around building financial protection, a term insurance plan should always be considered as the most effective solution. A Whole life plan on the other hand is a combination of savings option and an insurance option. In a term insurance plan, your beneficiary is supposed to get all the benefits associated with the plan only when you are not there and nothing comes as a extra benefit at the end of the policy term. The premium that you pay for a term policy is actually a service charge which you pay to the insurer to give you financial protection so if one is looking for just insurance , term insurance plans should always be considered because it is not only effective but also the cheapest option.
On the other hand considering the case of Whole life insurance plan, as said earlier it is a combination of both savings and insurance so what you pay as premium consist of two thing, one is the insurer’s fee to give you financial protection and other is the extra money which the insurance company charges you as a fee or as a share of interest and which depends on the pattern of investment the investment section of the policy follows. In case the investment section follows a Unit linked pattern of investment, then the premium contains a fee relating to fund management whereas if the investment section just follows a traditional investment strategy as offered by traditional insurance policies like endowment , the insurer share a part of the interest earned. This brings to one clear differentiation between term and whole life plan is the difference in premium. The term plans are very cheap as compared to whole life plans.
Looking at the whole gamut of financial needs of different individuals whole life plans can be very effective if one is looking for both, building a savings corpus which is powered by financial security. Whole life plans generally offers protection for a long period of time and your beneficiary not only gets benefits of associated with sum assured if the policy holder dies but also get a return on investment associated with money that has gone to the investment section of the plan.( Things One Should Ask Before Buying A Life Insurance Plan) The other most important benefit associated with whole life plan is one can always apply for a loan from the insurer against the money that has already been deposited with them but which is not the case of term insurance plan.
By definition term plans are effective only in of case of death of the policy holder but in case of permanent or partial disability of the policy holder the term plan are not very effective. In most cases one needs to pay an extra premium towards different riders to take care of specific needs and upgrade the term plan but in case of whole life plans most of these features come as a part of the overall offering by the insurer.( Common Myths About Term Insurance Plans)
So to conclude one should always look at term insurance plan if financial protection is the only objective which one needs to satisfy but but if somebody is looking at holistic investment vehicle supported with financial protection then whole life insurance plans is the most effective solution to look into. People should looking at a term policy should always start at an early age so that one can take full benefits of the same but if you are at your forties and you still don’t have an insurance plan in place whole life insurance are always advised as an efficient solution.