The two main types of insurance policies available in India are term insurance and whole life insurance.
Insurance is an essential part of any family’s finances. It protects against life events that can be financially devastating, such as the death of a breadwinner. The two main types of insurance policies available in India are term insurance and whole life insurance.
Plus, when looking to invest in insurance, it can be difficult to know which type of policy is right for you. Term insurance versus whole life insurance is the classic debate, but there are many differences between these two types of policies.
Term insurance plans are designed for people who don’t want or need long-term coverage. It protects for a fixed period at an affordable cost. They work well if your primary concern is to protect your family financially in the event that you die unexpectedly.
On the other hand, whole life insurance offers both a death benefit and an accumulation of savings, making it ideal for long-term coverage.
What is a term insurance policy?
Term insurance is a type of life insurance that covers the risk of premature death. If you die before the end of the policy term, the insurance company will pay the death benefit (equal to the sum insured under the policy) to your nominee. Term insurance is so called because it has an expiration date, unlike permanent insurance policies. If you survive the entire term, this policy will not give you any benefit.
Because term life insurance is cheaper than whole life insurance, many people choose to purchase term life insurance plans to cover their mortgage or other major expenses at a great price. On the flip side, some policies also offer a Return of Premiums (ROP) clause where the owner gets back the premiums they paid while the plan was in progress in the event that the insured survives the entire term of the plan. the police.
Term plans generally have a low monthly premium rate, which attracts a lot of young people. However, the premiums tend to increase as you progress in your life.
What is a life insurance policy?
A life insurance plan is an arrangement in which the individual pays small premiums at regular intervals to the insurance provider and, in return, the insurance provider promises the insured a financial settlement in the event of death. If your family is financially dependent on you, you should invest in life insurance as soon as possible.
Life insurance plans are affordable and help you prepare financially for things like college funds, retirement, or other long-term goals. These plans are flexible enough that you can buy what you need now, without affecting your ability to pay your monthly expenses. It also ensures that your loved ones will still be able to maintain the same lifestyle in their absence.
As interest rates are low, many people who wish to invest for their future are drawn to investing in life insurance. Life insurance is a long term investment product with a high rate of return. If you decide to invest in life insurance, the expected return is not just a death benefit but also an accumulation of cash. Life insurance can also be used for tax savings and retirement planning.
This article describes the main difference between term insurance and life insurance.
Difference between term insurance and life insurance
The most common difference between these two types of insurance is that a term plan only provides protection in the event of death during the term of the contract, while a whole life plan offers both protection. death protection and a maturity benefit. The benefit provided by the death claim is higher for term insurance than for permanent insurance. Most people who want life protection also want their investments to grow, so they prefer to buy life insurance. However, it is always advisable to have at least one term plan as it offers death cover at very nominal rates.
Risk coverage and savings
Term life insurance financially covers your dependents in the event of death, but it does not pay dividends over the years like whole life insurance plans do. That said, if you can’t afford to pay high premiums, you should consider investing in a term plan and taking advantage of the associated death benefit. However, in the event that you also want to create an investment corpus in addition to life coverage, you should invest in a traditional life insurance policy instead.
With term insurance, if you stop paying the premium for your coverage, your coverage will end. On the other hand, the maturity benefit of a life insurance policy is usually payable if the insured ends the term of the policy, i.e. for most policies this means pay all premiums. If the policy is terminated or surrendered before that, no maturity benefit is earned. While you can still receive the premiums you paid for the policy, they are also subject to certain deductions.
To get higher coverage under a life insurance policy, you will have to pay a higher premium. Most insurance buyers do not get sufficient coverage due to the high premiums. Life insurance policies generally offer low returns, between 5% and 7%, which may be subject to additional deductions if you decide to surrender the policy. On the flip side, term insurance plans are much more affordable than whole life insurance plans and offer higher coverage at minimal cost. Anyone who is not earning a stable income should opt for a term insurance plan.
While there are many differences between term insurance and life insurance, the biggest difference is how they protect you. Term insurance can only guarantee your financial future for a certain period of time, while life insurance will last until death. It is important to know what type of coverage you need before purchasing an insurance policy.