Difference Between Term and Whole Life Insurance

Difference Between Term and Whole Life InsurancePolicybazaarAverage Rating / 5 ( reviews)
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Purchasing life insurance now provides financial security to the beneficiaries later in case of any unfortunate situation. Insurance is the foundation of good financial planning. With a developing life insurance market, providers are offering plans ranging from savings and protection to wealth creation and investment.

There are two types of life insurance, they are:

  1. Term Life Insurance: The term insurance protects your loved ones for a specified tenure and has an expiration date.
  2. Whole Life Insurance: This type of life insurance does not expire and intends at providing protection for your entire life.

For you to identify the best fit for you, read below to have a detailed view of the features and benefits of both the life insurance plans.

What Is Term Insurance?

Term insurance is the simplest form of life insurance and provides coverage for a fixed period of time. It is designed to only protect your dependents in case of your early death. If you have taken up a term policy and you pass away within the specified term, your dependents receive the payout. The term of the policy is chosen by you and with most policies, the death benefit (payout) and the premium (cost) remain constant throughout the life of the term insurance.

When buying term insurance, you consider the following:

  1. You should choose a term that matches the years you will be paying bills and want the insurance coverage in case of your premature death.
  2. You should evaluate the amount your family would require if you are not there to provide for them.

What Is Whole Life Insurance?

Whole life insurance, like any other permanent insurance policies, provides lifelong protection and investment in the form of the policy’s cash value, which grows slowly and is tax-deferred. The policy lasts for your entire lifetime and you get a lump sum if you decide to discontinue the policy. It also offers flexibility to choose the frequency of your premiums and withdrawals.

Whole life insurance is the most straightforward permanent life insurance because:

  • The premium remains constant for your entire life
  • The cash value of the policy grows at a constant rate
  • The death benefit is guaranteed

Whole Life Insurance v/s Term Life Insurance

The table below lists the differences between whole life and term insurance:

Whole Life Insurance

Term Insurance

It provides protection for your entire life.

It provides protection for a pre-specified period of time.

You can partially or fully withdraw the accumulated cash value.

It does not provide any accumulated cash value.

It provides flexibility to the insured, the cover premium can be increased or decreased.

The benefits and premiums are fixed throughout the tenure of term insurance.

It allows for premium holidays.

No premium holidays are allowed.

It is used for long term covers like protecting the family or personal life cover. 

It is preferred by young people who want a long term cover to cover the loss of income because of death, disability or illness.

It used for covering business loans, mortgages, or time-specific financial goals like a child’s education.

 

The riders like living benefits such as long term care, hospitalization cover, family income benefit, and dismemberment cover can be added on top of the total disability cover and critical illness cover.

The riders such as permanent total disability cover and critical illness cover for Term Insurance can be availed.

The performance of a whole life insurance plan is based on market-linked investments. Therefore, regular review and expert advice are required to obtain the desired results.

The term insurance plan does not provide any investment options. Therefore, it does not require any regular review for maintenance.


The Final Say

The final decision of which policy to opt for depends on your needs and requirements. For someone who is looking for life insurance to cover the income for a specific period of time and wants the most affordable coverage can opt for Term Insurance plans.  If you are someone who wants to provide your dependents with a large amount to cover all major and minor expenses along with cash value that you can use during your lifetime at flexible premium payment options, then you should opt for a Whole Life Insurance.

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