Our lives are shrouded in unpredictability and to ensure your loved ones stay financially afloat after your passing, consider investing in a life insurance plan. Both term and whole life insurance plans are quite popular types of life insurance policies, each helping individuals attain the goal of securing their family’s future. If you are confused between the two, go through this page to get a clear picture of the subject, so you can make a more informed decision.
What is term insurance?
Term insurance is a popular type of life insurance policy that provides a death benefit to the beneficiary in the event the life assured passes away within the cover tenure. It is an affordable and straightforward insurance tool that doesn’t feature any investing or savings component. As the name might indicate, this type of life insurance plan is good for a certain period of time, such as 5, 10, 20, 30 or so years, after which the plan expires. In the event the life assured outlives the policy term, no payout is made.
What is whole life insurance?
In the case of whole life insurance, the plan covers policyholders for up to 99, or even 100 years of age. It also offers a death benefit to the beneficiary in the event of the tragic passing of the policyholder. In addition to the insurance element, it offers an investment component under a single plan, helping you plan for your long-term financial future.
Term insurance vs whole life insurance: How are they different?
Now that you have some basic idea about term and whole life insurance, let’s take a brief look into the aspect of term insurance vs whole life insurance;
| Categories | Term insurance | Whole life insurance |
| Premium | Term insurance usually has lower premium rates, making it quite affordable. | The rate of premium of whole life insurance plans is quite high as it features a savings element, longer coverage tenure and a non-forfeiture clause. |
| Death benefit | Term insurance offers a death benefit to the nominee, which is the pre-determined sum assured amount that you select at the time of policy purchase. | In the case of whole-life plans, the death benefit payout depends on the plan type. In this case, you can get;Sum assured on death,Sum assured or fund value, whichever is higher, with the whole life unit linked plan.Any applicable guaranteed* bonuses or additions (if available), under the traditional insurance plan. |
| Maturity benefit | Generally, there’s no maturity benefit with term insurance plans. In case the insured outlives the policy tenure, the plan is terminated without any payout. In case you have opted for the Return of Premium term insurance plan, you will get a refund of the premium upon maturity. | There is a maturity benefit with whole-life insurance plans, whether you opt for a unit-linked insurance plan or an endowment-oriented whole-life plan. In this case, the maturity benefit is not the premium paid refunded but a fixed amount paid in case the insured survives till 99 or 100 years of age. |
| Cover period | Term insurance features a short and specified cover tenure, like 5, 10, 20, or 30 years or so. | Whole life insurance covers you till the age of 99 or 100. |
| Flexibility | With term insurance, you get the liberty of choosing the cover amount, cover tenure, premium paying tenure, premium frequency, death benefit payout type, optional riders, etc. | Whole life insurance offers more flexibility options, letting you choose between endowment or unit-linked plans, different cover variants under endowment plans, desired premium amount, investment fund, tenure, etc., under unit-linked plans, and so on. You also get the ability to switch, premium redirection, partial withdrawals, etc., under ULIPs. |
Term or whole life insurance: Which policy is right for you?
If you are unsure about which plan to go for, go through the following pointers;
- Why choose term insurance?
You should pick a term insurance plan if you want;
- Affordable coverage for a certain period, for when you have dependent members or existing debts.
- Straightforward coverage for family minus the investment or saving aspect.
- High death benefit amount at a low rate of premium.
- A cover of additional benefits on top of existing investments.
- Why choose whole life insurance?
You should pick a whole life insurance plan if you want;
- A plan that covers your entire life and ensures a death benefit.
- Additional benefits in exchange for a higher rate of premium.
- A savings or investment component with your insurance plan.
- To leave a legacy or pass down an inheritance for your loved ones.
Conclusion:
This concludes all you need to know about term insurance vs whole life insurance. Each plan type has its own perks and merits and you should do your own research and evaluate your financial needs to find the policy types that fit your case the best.
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