Question

If you were to obtain life insurance would you look to obtain a whole life or term policy? Describe each policy, discuss and defend your position. In order to get full points you must answer each element of the question.

Answer 1

Meaning of whole life insurance:

The whole life insurance is a kind of endowment plan. It is basically a mixture of investment and risk coverage. In case of any mishappening, the beneficiary is provided with the death benefits where the whole claim is settled instantly, whereas in the case when the insured reaches the maximum age of the coverage the maturity benefits are also provided. The whole life(generally up to 100 years) of the insured is covered under this policy, the only thing that the insured is required to do is to pay the premiums on time, whether monthly/ quarterly/ yearly as per the plan.

Meaning of term life insurance:

The term life insurance is purely a risk coverage plan. It provides life risk coverage to the insured at a very low cost for a specific period of time. There is no component of investment under this policy, i.e., there is no payment on maturity to the insured. The general coverage term under this policy is one year, and the insured need to renew the policy each year to continue the risk coverage.

I would obtain the term life insurance. The rationale behind my selection is as follows:

• Provide risk coverage at a very low cost.
• The amount of premium is comparatively less.
• High sum assured in case of any mishappening.
• It provides Income tax benefits.
• It provides Critical Illness coverage.
• Option to add accidental rider is also available.