LIFE Insurance is essentially a long term financial arrangement to provide financial security to dependents. Various products are available in the market. Among them, term insurance is the purest form of life insurance.
Life insurers have over the years observed that it is very difficult to market a financial product under which no financial benefit accrues to the person who pays the price.
Therefore, products like endowment plans and Ulips have been devised.
Though term insurance policies do not provide any return to the person who pays the premium, they offer mental peace and comfort about the future of spouse and children. Term insurance does not have any saving component and, hence, it is the cheapest insurance product.
When a young man starts his career and family life, he suddenly finds himself committing to several obligations towards his children, spouse and ageing parents. He faces huge financial burdens of setting up a home and committing to high EMIs to own a car, a house or both. Most of the times, the situation becomes alarming and threatening for the young man and he starts feeling insecure. This is the time when he feels the need of a life insurance more, but finds the same unaffordable.
A term insurance plan is suitable for young people, the reason being it offers high risk cover at a very low cost.
It is perfectly suited for people in their 20s and early 30s.
The premium for a term insurance plan rises steeply above the age of 35 and becomes above the age of 35 and becomes very high thereafter. At a later stage of life, term insurance is not the right solution, because having lived through the most critical stage of life any person would already be having some savings or assets for their family members to fall back upon.
Whole life insurance policy (WLP) is yet another solution that provides comfort to a policyholder with regard to financial protection for the family at a relatively low premium.
The premium for a WLP is higher than that of a term insurance policy.
But it is lower than an endowment plan, maturing between the ages of 60 to 75. Another advantage of a WLP is that insurers attach higher bonus to such policies, which are marketed as with-profit products.
WLP is a very good tool for saving as well. Insurers normally allow loan facility as well as surrender value to the life assured for meeting urgent financial requirements during their lifetime. The premium for a WLP at an early stage of life is very low and it continues to be moderate if somebody goes for such a plan in his 30s.
Therefore, a WLP can be opted for when a person is somewhat financially stable in his life and needs life insurance protection for his dependents without shelling out large sums of money. WLP also serves philanthropic purpose better. If a person desires that a part of his wealth could be diverted to charity when he is no longer there, he can take a WLP and assign it in favour of any welfare organisation. Sometimes, senior people also go for a WLP and for their own satisfaction, earmark it for the benefit of the society. For such purposes, WLP can be purchased even beyond the age of 60.
