Whenever you are looking to buy a life insurance policy, you must have heard of the term such as Term life insurance and Whole life insurance. These are insurance products, but both of them are different which caters to different needs of their customers. People often choose any one of these products based on their requirement.
As the name say, here the premium is paid by the insured person for a fixed period of time during which the deaths benefits will be given to insured person, if he/she passes away. However, if the policy matures then in that case no benefits will be given to the respective beneficiaries.
The term insurance is sometimes called pure life insurance policies where one receive large amount while paying nominal premium for a fixed tenure. People generally receive flexibility while choosing sum assured and tenure.
However, as compared to other life insurance policies, the benefits of term insurance are very limited as there are no maturity or protection benefits available with term insurance plans. If you are looking at the policies of insurance as savings or investment instrument, then in that case it is not a good option.
If you have take term insurance for a period of 15 years worth Rs 55,00000 for which you pay a premium of Rs 4000 every month. So, for the 15 years you have to pay Rs 4000 to the insurance company. Now, during the duration, if you passed away then Rs 55 lakh will be given to your family, but you stay well till 15 years then you will get nothing for the premium you paid to the company.
Whole Life Insurance
Here the coverage will remain till your entire life as long as premiums are paid. In simple terms, it's a form of permanent life insurance. As it includes a cash value component, therefore it is not called a pure life insurance unlike term insurance.
For example, if a person takes whole life insurance and pays Rs 2000 as annual premium for it then a part of this premium is used for investment and cash value is given in return which he/she can borrow or spend. Its balance is for death benefit cover.
Which is better term life or whole life?
Whole life insurance has a longer tenure than life insurance and does not require renewal. Whole life insurance is costlier than term insurance.
In terms of dividend, the Whole Life Insurance provides regular dividends. This claim can be made only at the time of expiry of the policy. Dividends in Whole Life Insurance are fixed.
Which one is better for you?
For a 20-year-old who has just started a job, a long-term insurance product is better. In such a situation, it is advisable to take term life insurance as it is also cheap. But if a person needs additional investment options along with taking insurance, then whole life insurance is much better.