If you were like me before I stepped into this line of work, the world of insurance plans was a blur. And I was just too lazy or too occupied to sit down and understand the options out there and whether I was choosing the right thing. Well, here I have tried to sieve out the main facts of each type of Life Insurance Plan available and to give you a very clear and concise view so that you will understand immediately what you need in terms of life insurance.
1. Term Insurance
Term insurance provides cover for a specific period of time in the event of death. If the insured survives past the specified timeframe, the policy expires and nothing is paid out. Thus there is no accumulated cash value in the policy and cannot be used as an asset. Simply put, if you do not die during the period of cover, you do not get anything.
It is therefore typically the cheapest type of life insurance. It offers the protection one needs at minimal cost and is most suited for individuals looking just for protection and coverage in the event of an untimely death.
2. Whole Life Insurance
Whole Life insurance also offers cover in the event of death. However the main difference Whole Life has from Term Insurance is that Whole Life covers the insured for his entire life and not just for a specific period of time as in the case of Term Insurance. This naturally means that the beneficiary of a Whole Life Insurance will definitely stand to collect the sum insured since the insured will pass away eventually, upon which, the sum insured will be paid out to the beneficiary.
Whole Life insurance is thus targeted at those who want death protection and some guaranteed lump sum for their beneficiary. Premiums on Whole Life are more expensive than Term Insurance mainly due to the increased objective of the insurance, which is a lump sum savings for the beneficiary.
3. Endowment Insurance
Endowment Insurance is almost like Whole Life Insurance with the exception that it is for a specific duration of time. Thus unlike Whole Life Insurance, Endowment Insurance allows the collection of a lump sum payment even before the insured passes on. As such, premiums on Endowment Insurance is the most expensive of the three since payout will be earlier if no untimely death occurs.
Endowment Insurance is targeted at those who wish to collect the lump sum payout for their own usage in the later years or for those who expect a huge financial requirement (like paying for their children’s college or buying a retirement home) in the future and want to prepare for it.
Term Insurance => death cover only with no other needs (beneficiary focused)
Whole Life Insurance => death cover + lump sum savings for beneficiary (beneficiary focused)
Endowment Insurance => death cover + lump sum savings for personal objectives (self + beneficiary focused)
Hopefully, this very succinct and simplified explanation of the 3 main types of life insurance will paint you a very clear picture of what you need and should be looking for. There are many finer details in terms of options and variations in these 3 types of policies but it will provide for a good foundation in exploring your requirements and the most suitable product for you.