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Life plans have been of two major types – whole and term. Buying the Policy normally does not figure among the priorities for people who are caught in the race to grow. Of course, many of us are worried about the future and concerned about the ways and means of effecting the safety and security of our families. However, there is lack of clarity as to whether Term insurance serves the purpose, or if it had to be whole life insurance.
The debate boils down to how much money it would generate, and if it would be worth the investment. Intuitively, it would seem to make better sense to go in for an option that combines insurance with returns on investment. After all, why would not want it when someone offers returns apart from insurance and protection? And if you are to get the added benefit of ease of purchase, why would you not?
It provides insurance protection, while also combining the attraction of returns on the money that you invest. However, the question remains, how attractive are the returns? And are they significant enough for you to prefer whole life to term life?
Lack of control: One simple answer to the question would be that you would have no control over the returns generated in the first place. When you buy life insurance, and when you have an investment part of it clubbed together, you are tied to what the Insurer provides you in the form of returns. And despite your agent’s promises of guaranteed minimum returns, you can never be sure how much you would actually make.
Lack of Returns: Experience shows that the returns are invariably negative in the first few years, and tend to be much lower than projected for the short to medium term. That is not to say that you would not have returns at all – if you stick to the investments long enough, you would certainly have the returns coming in. However, you should be willing to go the long term.
Higher Risks: Another aspect to it, apart from the complete lack of control, is the need to invest all eggs in one basket. With online or the traditional option such as term plan, you would be able to buy insurance for the sake of it, while still retaining all the freedom to choose where you would want to invest your money. On the other hand, you would have to live with the money generated by your whole life insurance policy – and you can be sure it would not be something that would make you laugh all the way to the bank. With one part of your money going into insurance and some parts into administration of the funds, you would still be exposed to market risks on what remains of your investment.
If you are astute enough, buy life plan and invest your money for the returns you have been looking for.