Term Insurance vs Whole Life Insurance

• Premiums as low as Rs.18/day for sum assured of Rs.1 crore
• Paperless process available
• Choose between lump sum and monthly payout options

The main purpose of any insurance policy is to provide the policyholder a risk cover against death, and offer a payout to the nominee if the life assured passes away during the policy tenure. However, insurance firms offer many types of insurance policies that come with varying benefits and features. Amongst the various types of life insurance policies that are available in the market, term insurance and whole life insurance plans are extremely popular choices among policy buyers.

Term Insurance

Term Insurance or Term Life Insurance, as the name suggests, provides policyholders a risk cover for the duration of the policy tenure. Insurers offer term insurance plans with policy tenures starting from 5 years. In the case of a term insurance plan, the policy buyer pays a certain premium to avail the coverage accorded by the plan. If the life assured passes away while the policy is still in force, a death benefit is paid out to the nominee.

The popularity of term insurance plans can be credited to the fact that these policies offer a large sum assured for a low premium. However, the benefits provided by most pure term insurance plans start and end there. There are no additional benefits that the insurer is liable to pay. For example, if you survive till the end of the policy tenure, most term life insurance policies will cease to exist without the payment of a maturity benefit. For this reason, term life insurance plans provide a high level of protection, but cannot be considered an investment tool.

Whole Life Insurance

Whole Life Insurance policies, on the other hand, provide the life assured a risk cover for the entire duration of his/her life. Whole life insurance plans are typically more expensive than term life plans, since they provide a range of benefits to the policyholder/nominee. In most cases, for whole life insurance plans, policyholders will be given the option of paying their premiums for a limited period of time or for the entire policy duration.

Some of the benefits payable by a whole life policy include a death benefit, maturity benefit, surrender benefit, etc. In addition, certain insurers also provide policyholders the option to avail a loan against their policy, thus helping them meet their financial needs in the event of an emergency. Thus, this type of an insurance policy serves as a savings cum protection instrument.

Difference between Term Life Insurance and Whole Life Insurance

A few key areas where term life insurance plans and whole life insurance plans differ are listed below:

1. Premiums

A premium is a certain amount of money that one pays to the insurer in order to avail the protection accorded by the insurance plan. In this regard, term life insurance plans are usually cheaper than whole life insurance plans. When you purchase a term insurance plan, the premium is paid periodically until the end of the policy tenure. At the end of the policy tenure, you can choose to renew your policy at an increased premium rate. Whole life insurance plans offer policy buyers a higher but level-premium rate for the duration of the policy tenure. Thus, as long as you continue to pay your premiums, you will have a risk cover.

2. Tenure

The coverage offered by a term insurance plan is limited to the duration of the policy tenure. However, you always have the option of renewing your policy. A whole life policy, on the other hand, offers more comprehensive coverage for the duration of your lifetime. However, with whole life plans, policyholders can choose to surrender their policies at any time during the policy tenure and avail the surrender benefit.

3. Cash Value

Term insurance plans do not accumulate any cash value. In comparison, when you purchase a whole life insurance plan, the insurer invests a certain portion of your premium in conservative funds. As the investment keeps earning interest, your policy’s cash value increases. Once your policy has accumulated a sizeable cash value, you have the option of taking a loan against your policy. The cash value will also be made available to you if you surrender your policy during the policy tenure. Insurance firms may also choose to pay you the cash value in the form of an annual bonus, as per the company’s experience.

Should you choose a Term Life Insurance or Whole Life Insurance Policy?

Essentially, if you have dependents, you should have an active insurance policy at all times. However, if you are still in your 20s without too many financial liabilities, it is advisable to purchase a term insurance plan. Term insurance plans provide a high level of protection at low premium rates. On the other hand, if you are a middle-aged individual with several dependents, a whole life insurance plan is the best option for you. A whole life plan will provide a comprehensive risk cover with a host of benefits that can help you meet significant milestones in your future.