Whole life term vs Regular term insurance
In the case of an unfortunate accident to you, the first thought that comes to your mind is the well-being of your loved ones. Having confidence that those who are dependent on you will be well taken care of, even in the case of your untimely death, is bound to give you peace of mind. This is precisely why a life insurance plan is a crucial part of financial planning.
When it comes to life insurance, there are two broad types of policies that are popular - regular term insurance and whole life term insurance. Let’s take a more detailed look at both of them.
Regular Term Insurance
Regular term insurance, often just referred to as term insurance, is a policy that is valid for a predetermined time period, and offers the beneficiary a certain amount of money in the event of the untimely death of the insured individual. If the insured individual outlives the policy period, then the money is forfeit and there is no payout.
For term insurance plans, you are expected to pay a yearly premium. For younger individuals, this premium is quite low and affordable. With time, however, the premium for a term insurance plan keeps increasing, simply because the risk of having to pay increases as well. Typically, in regular term plans, the policy is valid until the age of 70 or 80 and varies depending on the specific insurance plan and insurer.
Whole Life Term Insurance
A whole life term plan, unlike regular term insurance, offers insurance for the entire lifetime of a person. In the case of a whole life insurance plan, outliving the whole life term policy results in a lump sum payout to the insured individual. Such an event is referred to as policy maturation, and also results in several other benefits to the insured person.
Just as with regular term plans, a yearly premium must be paid for a whole life insurance plan. The premium, however, does not increase with time but remains the same over the entire lifetime of the individual. That may sound better on paper but be warned that you will have to pay higher premiums (sometimes significantly higher) compared to regular term insurance, especially in the early years. With certain types of whole life insurance policies, it is also possible to stop paying premiums whenever you want and withdraw the money accrued until that point.
Major Differences Between Whole Life and Regular Term Insurance
Before deciding which insurance plan to go for, it is better to clearly understand how the term insurance plans are different.
- Premium amounts are constant for whole life plans but can be significantly higher than the premiums for regular term plans, which change dynamically based on several factors such as the insured individual’s health, habits, and age.
- In the case of whole life policies, the premiums paid by you are invested in numerous avenues in addition to a protection fund. If the insurer receives any profits from these investments, you will be given a bonus. Regular term insurance plans, on the other hand, do not have such a feature.
- Regular term plans have a fixed tenure during which the policy benefits can be availed. Whole life policies have tenures that are typically up to 100 years of age. Once the individual turns 100, the benefits will be paid out.
- Whole life policies are almost always a combination of life insurance and a savings plan. Regular term insurance is only a pure life insurance plan that does not include benefits of any other kind.
- Whole life plans also have a feature that allows the insured individual to take loans at a lower interest rate by using the amount accrued from the premium payments. Future premium amounts are not affected if this feature is availed. These benefits are not available with regular term policies.
- In a regular term plan, it is only possible to receive the payout in case of the death of the insured individual. There is no option to withdraw the money voluntarily.
- Whole life policies pay out the sum assured on the death of the insured individual or when the person reaches the age of 100. With certain whole life policies, it is also possible to close the policy at any time, and withdraw the amount accrued until that point.
Choosing a Whole Life Term Insurance
For someone who is over the age of 40, a whole life policy might work out much better in the long run. Since you cannot reap the benefits of lower premiums of regular term plans due to age, your premiums for this plan will be comparable to regular term plans. You also have the option to stop the policy whenever you wish and use the money at any point in your life. The life cover, on the other hand, will provide a sufficiently high payout to your dependents in case of death.
Choosing a Regular Term Insurance
If you are an unmarried individual in your 20s or early 30s, a regular term plan makes financial sense. For fairly low premium payments, you can have sufficiently high monetary benefits. Also, if you are someone who has pressing health problems, a term plan would be much more useful since it can guarantee the most benefits in the shortest period.
Now that you’ve read up on the two most popular types of life insurance plans, you can make an informed decision on choosing the perfect policy that fits your requirements. Remember that, though we have provided you with the basic information regarding each, the right plan for you really depends on your financial goals based on your unique financial position.
As always, we highly recommend that you consult with a financial consultant before you invest your money in one plan or the other.