Guide to Term life vs Whole life insurance :
What are the secret policies that you know about that others don’t know of?
This is really not a secret but the thing is most people don’t know this stuff. They listen to commercials promoting cheap term plans. Many insurance companies aggressively market cheap term plans and many online shoppers get trapped and buy to regret later.
“Get 1 Crore Life Cover at Rs. 490 pm”
As per the IRDA study, less than 2% of term policies ever pay a death claim. There is a sense of pseudo satisfaction among those shoppers that they have protected their families. The only pro is buying a large cover at a cheaper rate but there are many cons. The only policy that matters is the one that is in force when you die!
The majority of shoppers do not continue their term insurance when they are in financial problems resulting in the policy expiring without any value. So there are two losses in this, one is the opportunity cost which one may have made if invested in another investment, second is the premium paid for the whole term.
The whole life policy on the other hand has cash value even if one stops paying after few years and therefore has continued risk cover till age 100.
Many financial gurus advocate buying terms and investing the difference and while investing they recommend adding debt funds based on an individual’s risk level. Some experts recommend 60 percent equity and 40 percent debt.
Given the current falling interest rate scenario, it does not make sense to invest in debt funds and therefore whole life can be a part of the debt portfolio. Young people should replace the debt part of the portfolio with whole life insurance. The reason for choosing whole life is it gives debt-like returns without interest rate risk. There is also tax-free return in whole life which is not available in debt fund.
The whole life can be a bond substitute rather than a stock substitute. Real estate can be considered as protection against inflation, it should not be part of the guaranteed income portfolio.
At AssuredGain, we have noticed people who are committed, purchase life insurance, and those who are not committed don’t. At the same time, those who want to get rich quickly with investments usually overlook the value of life insurance because they are too focused on price, instead of value. The guarantees and the history behind whole-life insurance contracts demonstrate the commitment necessary to provide for the future regardless of what anomalies or irregularities may come. We always welcome those who are ready to make a commitment. At the same time, we attentively work with those who appear to be wanting a relationship…never giving up hope that they too will become committed.
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