The debate goes on. Which is better ‘term' or ‘whole life'. More and more experts seem to recommend term insurance as the only meaningful option. Very rarely a whole life is recommended. However, I would stick my neck out at the cost of being controversial that whole life insurance makes more sense. Here is the single reason why?
Increase in life expectancy is the single most reason. Before going into the life expectancy statistics, let us understand the difference between a term insurance and a whole life policy.
Term insurance is considered the cheapest form of insurance. For instance, in India, a 30-year-old male can get a cover of 25 lacs for a premium of anywhere between Rs. 4000 to Rs. 7500 for a 20 year term. That is, the coverage amount (in this case 25 lacs) is paid out only when there is death. Term insurance is considered ideal because it provides a sense of security for a very small premium or cost. The said cover is available only for the term chosen, in this case only till age 50, after which the cover runs out.
A whole life cover as the term suggests provides a cover for the entire life. These plans come in different flavors, like a limited payment whole life. Some plans payout the sum assured and the bonus at the end of a specified term, with the original cover value continuing on, etc. Two points to be noted here. One, there is a cash-value build-up as the insurance company adds bonuses every year as part of the profit participation. There is also liquidity in terms of ‘cash advance' or loans against the ‘cash value' accumulated, which is available throughout the life of the policy. Two, the premiums are far higher than it would cost to buy a term insurance due to the savings element built into the whole life policy.
There is a quote which says, ‘term insurance is temporary and is designed to die before you do', whereas a whole life is permanent. Let us ruminate on this. Initially, I was a little ‘not-so convinced' about this until I looked into the life expectancy tables a little closely.
Here are some staggering statistics. Life expectancy at birth for an average Indian male is 64 and for a woman 67 years. Here is where it gets interesting - Life expectancy at a particular age, say age 40 years, goes up to 75 years for a Indian male and 78 years for an Indian woman. Now, this is for a ‘worse-case scenario'. It is shown in countries like Sri Lanka the life expectancy is much better than India on the account that the Government spending on healthcare is much higher than that of India. This clearly indicates that people with better access to modern medical facilities will live longer than what the life expectancy tables indicate.
In conclusion, I agree to the statement that ‘Term Insurance' is temporary and is designed to die before you do.'' Now, in India no term insurance lasts beyond age 65. It makes sense that if at all one does take a term insurance, then take it at an earlier age and for a term that last till age 40 and for cases to cover liabilities like home loan, a car loan, personal loan, etc. Nowadays, most home loans come bundled with term insurance known as mortgage redemption plans.
A whole life policy makes better sense as it encourages long-term savings, adds diversification to the debt portfolio in the security basket, is tax efficient, and also forms a part of estate planning, takes care of last expenses, etc. It is an approach with positive thought, based on the probability of living long even though death is certain.
Increase in life expectancy is the single most reason. Before going into the life expectancy statistics, let us understand the difference between a term insurance and a whole life policy.
Term insurance is considered the cheapest form of insurance. For instance, in India, a 30-year-old male can get a cover of 25 lacs for a premium of anywhere between Rs. 4000 to Rs. 7500 for a 20 year term. That is, the coverage amount (in this case 25 lacs) is paid out only when there is death. Term insurance is considered ideal because it provides a sense of security for a very small premium or cost. The said cover is available only for the term chosen, in this case only till age 50, after which the cover runs out.
A whole life cover as the term suggests provides a cover for the entire life. These plans come in different flavors, like a limited payment whole life. Some plans payout the sum assured and the bonus at the end of a specified term, with the original cover value continuing on, etc. Two points to be noted here. One, there is a cash-value build-up as the insurance company adds bonuses every year as part of the profit participation. There is also liquidity in terms of ‘cash advance' or loans against the ‘cash value' accumulated, which is available throughout the life of the policy. Two, the premiums are far higher than it would cost to buy a term insurance due to the savings element built into the whole life policy.
There is a quote which says, ‘term insurance is temporary and is designed to die before you do', whereas a whole life is permanent. Let us ruminate on this. Initially, I was a little ‘not-so convinced' about this until I looked into the life expectancy tables a little closely.
Here are some staggering statistics. Life expectancy at birth for an average Indian male is 64 and for a woman 67 years. Here is where it gets interesting - Life expectancy at a particular age, say age 40 years, goes up to 75 years for a Indian male and 78 years for an Indian woman. Now, this is for a ‘worse-case scenario'. It is shown in countries like Sri Lanka the life expectancy is much better than India on the account that the Government spending on healthcare is much higher than that of India. This clearly indicates that people with better access to modern medical facilities will live longer than what the life expectancy tables indicate.
In conclusion, I agree to the statement that ‘Term Insurance' is temporary and is designed to die before you do.'' Now, in India no term insurance lasts beyond age 65. It makes sense that if at all one does take a term insurance, then take it at an earlier age and for a term that last till age 40 and for cases to cover liabilities like home loan, a car loan, personal loan, etc. Nowadays, most home loans come bundled with term insurance known as mortgage redemption plans.
A whole life policy makes better sense as it encourages long-term savings, adds diversification to the debt portfolio in the security basket, is tax efficient, and also forms a part of estate planning, takes care of last expenses, etc. It is an approach with positive thought, based on the probability of living long even though death is certain.