• Term Insurance Vs Whole Insurance

    Life Insurance
    • Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
    • Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
    • Do more with plans that offer pure protection, retirement planning and investment options

    When you are looking to purchase a life insurance policy, it is likely that you will come across various types of life insurance products, such as term insurance plans, whole life insurance plans, unit-linked insurance plans (ULIPs), endowment plans, money-back plans, etc. While the primary purpose of life insurance is to provide financial security to the nominee in case of the policyholder’s death, different types of life insurance products offer certain unique benefits to policyholders. Read on to know more about the key differentiating factors between two of the most preferred life insurance products -  whole life insurance and term insurance.

    What is whole life insurance?

    A whole life insurance plan, as the name suggests, is a policy that is designed to provide a life cover to the life assured for his/her entire lifetime. Whole life policies, in addition to providing a risk cover against death to the life assured, also serve as a savings instrument. Thus, these policies may also provide a maturity benefit at the completion of the policy tenure or survival benefits during pre-defined policy years. Due premiums, in the case of whole life insurance policies, may have to be paid for the entire policy tenure or for a limited number of policy years.

    What is term life insurance?

    A term insurance policy is a particular type of life insurance plan that provides coverage to the life assured for a specific tenure. The coverage offered by term life plans are more basic since these policies do not acquire a cash value. In the case of term life insurance policies, if the policyholder passes away during the policy term, a death benefit or payout will be offered to the nominee. The death benefit will be equal to the full sum assured. Term insurance policies do not provide a maturity benefit to policyholders at the completion of the policy term.

    Key differences between whole life insurance and term insurance plans

    1. Pricing: Typically, the premium of a term insurance policy is lower than that of a whole life policy since term insurance plans do not acquire a cash value at any time during the policy tenure. However, in the case of whole life policies, the premium charged will remain constant during the entire policy tenure. On the other hand, premiums for term insurance plans will increase each time you renew the policy.

    2. Benefits/Payouts: Most term insurance policies only pay out a death benefit upon the life assured’s death. However, certain term insurance policies come with a ‘return of premium’ feature, in which all premiums paid will be returned to the policyholder if he/she survives till the completion of the policy tenure. On the other hand, whole life insurance policies also provide maturity or survival benefits during the term of the policy. Thus, the policyholder is guaranteed a certain sum of money at maturity of the policy or may also be paid survival benefits during certain policy years.

    3. Policy Tenure: In the case of term insurance plans, policy buyers can select a policy tenure between 5 years and 30 or 40 years. Thus, policy buyers can avail coverage for a specific duration, as per their needs. Whole life insurance policies, however, come with a policy tenure of 99 or 100 years, thereby guaranteeing adequate coverage for the policyholder’s entire lifetime.  

    4. Cash Value: Term insurance policies don’t come with a cash value component. On the other hand, whole life insurance policies will acquire a cash value if the due premiums are paid for a certain number of policy years. Thus, individuals who purchase whole life insurance policies can avail a loan against their policy and will be eligible to receive a surrender benefit if they surrender their policy.

    Which policy should you opt for?

    Both term insurance and whole life insurance policies have a number of benefits, and either one of these policies might be the right choice for you based on your needs and financial requirements. If you are looking to purchase a life insurance cover without paying a high premium, it is best to opt for a term life insurance plan. On the other hand, if you are looking for a policy that will provide you the dual benefits of a protection cum savings tool, it is advisable to opt for a whole life insurance policy.

    Regardless of which policy you purchase, make sure to assess your financial needs, liabilities and lifestyle, research various life insurance policies offered in your city, compare premium quotes, and read through the policy brochure in order to make an informed decision when purchasing a life insurance plan.

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