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Term Insurance or Whole Life Insurance - Which one is better?
When buying life Insurance in the UAE, you mainly consider a term life or whole life insurance.
Each type has its own benefits and drawbacks, so it's essential to understand the difference before deciding.
It is a simple, affordable, and pure-risk life insurance policy. It provides coverage for a set period, such as 10, 20, or 30 years.
It provides a cash lump sum in the unfortunate event of death during the plan's term. Once the term ends, your coverage will end.
Advantages of Term Life Insurance
- The main advantage of term insurance is that it's relatively affordable. The premiums are much lower than whole life insurance and can be fixed for the entire policy term. This makes term insurance a good option for people who need life insurance for terms between 5 - 30 years.
- You can also add helpful riders to the term insurance, like critical illness benefits, Permanent and Total Disability Benefit, Accidental death benefits, and a few more.
- The scope of coverage is global, including the USA. Residents can buy a policy in the UAE and continue the policy even when they move to the USA.
Disadvantages of term insurance
- The main disadvantage of term insurance is that it's not permanent. If you die after the term ends, your beneficiaries won't receive any money,
- There is also no maturity or cash surrender value on the policy. It is like a rented house you can use for a specific period, and when you vacate, you don't get back the rent.
- Another disadvantage of the term Life insurance is that the policy lapses after the grace when you miss premium payments.
- The Term plan is inflexible; you cannot increase or decrease the benefits, add or remove benefits or extend or reduce the term of cover.
Whole life insurance
It is a type of life insurance that provides lifelong coverage and builds cash value over time. it also provides access to a wide range of Investment funds and Strategies to help you Grow Wealth and Protect against Loss of Income
If you surrender the plan and the coverage benefits, the cash value can be used to complement your retirement savings, your children's college tuition, or even a down payment on a house.
Advantages of Whole Life Insurance
- The main advantage of whole life insurance is that it's permanent. Once you purchase a whole-life policy, you'll have coverage for the rest of your life. This can provide peace of mind for you and your family, especially when you have living benefits like critical illness coverage.
According to Zurich's benefits paid report 2023, the oldest claimant of critical illness cover was 80. They must have had the Whole Life cover, most likely.
- Whole Life plans are flexible and can adapt to your changing life and financial situations. You can add or remove benefits. Increase or decrease the benefits or even partially withdraw from the cash value during emergencies.
- You can also increase or reduce the premium payment term or make ad-hoc payments into your plan to reduce your regular contributions.
Disadvantages of Whole Life Insurance
- The main disadvantage of whole life insurance is that it's more expensive than term insurance. The premiums are higher, and they can increase over time.
- The cash value in a whole life policy may not keep up with inflation, so it may have to plan the coverage and cash value efficiently.
- You may be unable to continue the policy if you move to the USA.
- The growth of your investment is critical to the Whole life sustainability of the plan.
Which one is right for you?
The best type of life insurance for you depends on your individual needs and circumstances. If you need life insurance for a specific purpose and are on a budget, term insurance may be a good option. If you want lifelong coverage and peace of mind, whole life insurance may be better.
It's important to talk to a financial advisor to get personalized advice on which type of life insurance is right for you.
They can help you compare different policies and find one that meets your needs and budget.
Here are some additional factors to consider when choosing between term insurance and whole life insurance:
- Your age: Term insurance is typically more affordable for younger and older people, while whole-life insurance can be better for people up to age 45.
- Your health: If you have health problems, you may have trouble getting a whole-life insurance policy. Term insurance may be a better option for you.
- Your financial goals: If you're saving for retirement or other long-term goals, whole life insurance can be an excellent way to grow your money tax-deferred. However, if you're not saving for specific goals, term insurance may be more affordable.
No matter which type of policy you buy, you should avoid the Six silly mistakes people typically make when purchasing life insurance in the UAE.
To know more about the term or whole of life insurance and to help you choose the most suitable protection plan, arrange a free consultation with me.
Author, Blogger & Independent Financial Advisor. My goal is to give you actionable tools for creating passive income and building wealth. More than 10,000 expats have already used my ideas to jumpstart their journey towards financial independence. Connect with me to start yours...