Difference Between Term and Whole Life Insurance
A life insurance is a plan to insure the life the policyholder by paying the specified amount on account of their death, which is subdivided into, (a)Term life insurance where the policy is for a specific period and once the period is over, the policy can be either renewed for another term or it is left terminated, due to which the premium is relatively lower and there is no payout if the insurer dies after the term is over; and (b)Whole life insurance, also known as a kind of saving or investment plan insures the whole life of the insurer, where the accumulated money is paid off on the death of the insurer in exchange of periodic premiums which is why its premiums are higher in comparison to others.
Life insurance policies can be whole life or universal and it mixes both protection and investment purpose whereas term insurance is specifically for a particular term which is stated and is only for protection purpose mainly death.
What is Term Life Insurance?
Term insurance is life insurance taken for a certain period or term. In case of death of the policyholder, the sum assured is paid to the beneficiary of the policyholder No amount is paid out to the policyholder if he/she survives the policy term. This makes term insurance a pure life insurance policy. It gives a very high cover for a very low premium.
The benefits are as follows:
- It is the least expensive form of life insurance and is very much affordable.
- It does not mix insurance and investment since it’s a pure life insurance plan.
- Since it is affordable it helps us to buy an adequate cover so that the individual is not underinsured.
- Term insurance requires a low premium hence ample money is saved for investment purposes.
- Riders like critical illness; disability, the premium waiver to make it comprehensive, etc can be added whenever required.
- It increases and enhances the individual’s cover.
- No upper limit for buying but eligibility criteria is based upon the individual’s income.
Early a term plan is purchased it is better since premium will be lower as with increasing age lifestyle diseases may increase your premium as these diseases come under pre-existing ailments.
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What is Whole Life Insurance?
The life policies are legal contracts and the terms and conditions mentioned describe the limitations of the insured events. The specific exclusions are mentioned clearly in the contract to limit the liability of the insurer like claims related to suicide, fraud, war, riot and civil commotion.
Life insurances come under two major categories- Protection policies and Investment policies. Protection policies are designed to provide a benefit like a lump sum payment in the occurrence of any specified event. Investment life insurance policies offer a lump sum amount after a certain age is reached.
Term Life vs Whole Life Insurance Infographics
Let’s see the top differences between term life vs whole life insurance.
- Whole life insurance has a guaranteed return which is paid on maturity whereas in the case of term insurance the lump sum amount is paid only if death or certain eventuality occurs. No payment is made in cases of survival within the fixed term.
- In the case of whole life insurance premiums, the amount is very high as it also covers investment purposes. In the case of term life insurance, the premium amount is less and coverage is higher and there are clauses following which an individual can add the name of wife, children, etc. at a later stage.
Term Life vs Whole Life Insurance Comparative Table
|Basis||Term Life Insurance||Whole Life Insurance|
|Premiums||The term is chosen by the individual, and do not pay for the insurance not required.||The premium paid is fixed and do not increase over the whole duration.|
|Tenure||Most of the term policies have an expiry.||Life insurance Policies offers coverage for the whole life of the insured, generally, that can be 120 years.|
|Cash Value/ Investment||Term insurance policies do not build any cash value.||Provide guaranteed cashback and also offer protection.|
|Paid-up value||Not applicable in case of term insurance if the premium is not paid||Life insurance policies can be paid up in a limited number of years.|
|An option of premium holiday||Term insurance lapses after 31 days if the premium is not paid.||Has this option for life insurance as the cash value can offset the premiums missed.|
|Cost||The premium paid for term plans are less costly due to its lesser tenure.||Life insurance is costly compared to term plans.|
|Sum Assured||In case of survival of the insured for the specified period, nothing is payable.||On maturity sum assured is paid to the insured.|
The decision taken by an individual to choose a whole life insurance or term life insurance depends on the need of insurance he or she has. A whole life insurance’s main purpose is to provide protection to the dependents of the insured after his demise.
Though it acts as an investment vehicle and also provides tax rebates, it should be bought keeping in mind only the protection factor. In comparison term plan which is for a limited term is mainly purchased to meet some specific needs with a specified tenure like mortgage protection, child education protection.
This has been a guide to Term Life Insurance vs Whole Life Insurance. Here we discuss the top differences between these insurance along with infographics and comparative table. To learn more about insurance, you may have a look at the following articles –