Whole life term insurance vs regular term life insurance: How to choose between themhttps://indianexpress.com/article/business/banking-and-finance/whole-life-term-insurance-vs-regular-term-life-insurance-5706926/

Whole life term insurance vs regular term life insurance: How to choose between them

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Representational image. (Source: Reuters)

By Santosh Agarwal

Term insurance continues to remain the simplest, purest and most convenient forms of insurance that provide payment of the entire amount assured, provided death of the policyholder occurs within the policy tenure or term. However, if the policyholder survives to the end of the term, the cover ceases and the insurer pays nothing. The premium of a term insurance is completely based on various factors including your age, sum assured, health risks, and the plan term. Moreover, the premium is only allocated towards mortality charges in a basic term plan.

Another life insurance that is equally popular is whole life insurance that promises to provide lifelong coverage. Earlier, there were very limited companies that were providing whole life term insurance, one of them was Bharti Axa, which extended the age limit till 85 years. Under this plan, the policyholder could buy the plan and get coverage up to 85 years of age. However, in the last few months, the entire concept of term insurance plan has been revamped to Whole Life Term Insurance Plans, which are quite popular among the people as they promise to cover policyholders for their entire life.

Now that the concept of retiring from work at the age of 60 is fading away, it is always better to stay protected for at least 15 years more, till the age you plan to work. There have been significant studies and research that favour whole life term insurance and especially for people with young children, who need a large amount of inexpensive death benefit. No wonder, whole life term insurance is the perfect way to get low-cost coverage. Whole Life Term Plans help in estate planning and leaving funds for the family. And then, given you don’t exactly know when you are going to die, whole life term insurance is something that really makes sense!

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Here are some popular scenarios when you need a regular term insurance:

You are the sole breadwinner of your family

In case you are the only earning member in your family, term insurance is a must for you! Just for once, think about what the situation would be of your parents, spouse, and kids if you weren’t alive. How would they manage everything? Would there be enough resources available for them to pay for ongoing daily expenses?

You plan to give your kids a college education

We can all see that the cost of higher education is rising significantly every year and there are few students who can graduate from college without actually going into debt. If you plan to pay for your kid’s private school or college education, term insurance is a sure-fire way to make sure it happens. Yes, even if you’re not alive!

Your spouse has debts

Life insurance is primarily designed to protect you and your family from an uncertain calamity. A lot of young couples these days start their marriages with a huge amount of debt, like student debt. This can turn into a calamity if just one person remains to cover the payments. Another critical scenario where term insurance becomes a must is when there is a huge disparity in the incomes of the partners. Getting the difference insured means that even if the higher earning individual dies, the individual with the lower income can meet their current cost of living.

Below are price comparisons of term insurance offered by four prominent insurers for a 30-year-old non-smoking male residing in a metro city. The total sum assured is Rs 1 crore.

Company Plan Name Cover Up To Annual Premium (Rs.)
ICICI Prudential Life Insurance iProtect Smart 70 years 12,502
HDFC Life Insurance 3D Plus Life Option 70 years 12,478
Max Life Insurance Online Term Plan Plus 70 years 10,148
AEGON Life Insurance iTerm 70 years 8,331

*Source: http://www.policybazaar.com

Here are some popular scenarios when you need a whole life insurance:

To secure your entire life

As the name itself suggests, a whole life insurance lasts for the entire life of a person. Till you pay the premiums, your life is secured. The death benefit is significantly higher in whole life insurance thus ensuring a good financial backup for your family.

Legacy planning

Whole life term plans are indeed an excellent option for initiating a legacy rather than investing in existing endowment plans. The beneficiaries get a guaranteed sum assured upon the death of the insured.

The following is a table comparing whole life insurance policies of five leading companies for Rs 1 cr for a 30-year-old non-smoking male living in a metro city

Company Plan Name Maximum Coverage

(Years)

Total Payout Premium

(Annually)

ICICI Prudential Life Insurance iProtect Smart 100 + years 1 Cr 28,176
HDFC Life Insurance Life Long protection option 100 + years 1 Cr 44,344
AEGON Life Insurance iTerm 100 years 1 Cr 14,778
TATA AIA Life Insurance Sampoorna Raksha 100 years 1 Cr 15,458
PNB MetLife Mera Term plan 99 years 1 Cr 15,812

*Source: http://www.policybazaar.com

Cost Comparison

No doubt, term life insurance is significantly cheaper as it is temporary and most importantly carries no cash value. But in most cases, the family does not receive a payout because you are probably going to live beyond the end of the term. In case of whole life insurance, the premiums are comparatively higher as the coverage lasts a lifetime and comes with a guaranteed cash value.

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The author is Chief Business Officer- Life Insurance, Policybazaar.com. The article has been published in collaboration with Policybazaar.com. Opinions expressed are those of the author.