A life insurance is an bilateral contract between an insurance company and the insured person. In lieu of the premiums received by the insurance company from the insurance, the insurance company will provide a lump sum amount to the beneficiaries of the insured on death of the insured.
Generally an insurance plan is selected on the basis of the needs and goals of the person to be insured.
Coming to the term life insurance, term life insurance plan provides the life cover for a specific period of life of the insured, while universal of whole life insurance provides whole life cover.
It can be noted here that generally death benefits received from all types of insurance are exempt under income tax.
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The main aim of term insurance is to provide life cover for specific time slot lets say 10-20 years. The premium for the covered period remains same throughout the term of the policy. After the expiry of the period the insurance company may offer coverage for another period generally on a higher premium.
A term insurance is said to be less expensive as compared to permanent insurance.
The proceeds of the term insurance is generally used in lieu of the lost potential of earning. Term insurance provides safety and security to the beneficiaries of the insured person in case of happening.
Term insurance has played a very vital role in today's time, where theirs is no assurance of the life period. In that cases primarily where there is a single earning member in the family.
Also one point to be noted is that in the event of the death of the insured person, the death benefit is paid on lumpsum basis to the beneficiaries of the insured and not in instalments.
Universal life insurance is usually taken to insure the whole life of the insurer irrespective of number of years of coverage. Unlike any other life insurance universal life insurance is flexible enough to change the premium and insured amount throughout the lifetime. Some universal life insurance provides only death benefits, while some provides death benefits as well as wealth building benefits and some provides guaranteed death benefits.
Universal life insurance is generally used to build the wealth and transmit the wealth in a proper way to the beneficiaries. Its also a good source of preserving regular incomes where there is a need of regular income even after your retirement.
Whole life insurance is a type of permanent life cover insurance irrespective of number of years for which the insured period lives. As this insurance covers the whole life of the insured, the premium for whole life insurance plan is slightly higher than term life. Like term insurance, premiums are generally fixed in this plan also, but unlike term insurance whole life has a cash value which works as savings component and may accumulate tax-deffered over time.
Whole life insurance is generally used to preserve the wealth you plan to transfer to your beneficiaries.