Term Insurance & Whole Life Insurance: Meaning and Differences

What Is Term Life Insurance?

A term insurance policy  offers the nominees with financial security. It is convenient as well as an affordable solution to safeguard your loved ones from financial exigencies in your absence. The insurance company provides the nominees with death benefits on the demise of the life assured. The financial payout provided by the insurance company may help the beneficiaries to fulfil their life goals in the life assured’s absence.

 

What Is Whole Life Insurance?

A whole life insurance  policy offers protection to the policyholders up to 99 or even up to 100 years. Additionally, this policy provides insurance as well as an investment under a single roof. The paid premium accumulates so that you can fulfil your life goals.

Now that you know the basics about each of the two policies, let’s begin by understanding the differences between the two. Take a look at the differentiation between a term insurance policy and a whole life insurance policy mentioned below:

Term Insurance vs. Whole Life Insurance: Know the Differences in Simple Words

Life is full of surprises. Some good, some tough. That is why life insurance matters. It helps protect your family if something unexpected happens to you. But how do you choose the right type of life insurance? The two common options are term insurance and whole life insurance. This guide will explain both in a very simple way so you can understand the differences and pick what works best for you.

Term Insurance and Whole Life Insurance: Simple Meanings

Term Insurance gives protection for a fixed time, like 10, 20, or 30 years. If the policyholder passes away during this time, the nominee gets the sum assured.

Whole Life Insurance gives protection for your entire life (up to 99 or 100 years).

Accurate Personal Information

Make sure your details, like name, date of birth, and contact info, are correct while filling out the form. Mistakes may cause problems at the time of the claim.

Assess the Benefits Offered

Read your policy document carefully. Check if it helps your goals, like education, marriage, or buying a home for your family.

Rider Details

You can add extra benefits called riders at extra cost, like accident cover, critical illness cover, etc. Choose them as per your needs.

Premium Payment Details

You can pay premiums monthly, yearly, or all at once. Choose what suits your income and comfort.

What is the Difference Between a Term Insurance Policy and a Whole-Life Insurance Policy?

 

The need for a life insurance policy  depends on person to person. For every policyholder, the investment in either of the two plans is different. Typically, the critical factor of consideration at the time of purchase is life coverage. In the meantime, take a look below, which will help you understand your need for each policy:

Premiums 

The premiums of term insurance  and whole life insurance are different. Whole life plans usually have a higher rate of premium because of the following reasons –

● Savings element

Whole life insurance plans offer a savings element. There’s a maturity benefit if the insured survives till 99 or 100 years of age.

Term insurance plans don’t usually have any savings element except for the return of premium plans. As such, their premiums are low.

● Longer coverage

Whole life plans have an indefinite tenure. They run till the life insured attains 99 or 100 years of age, depending on the plan chosen. Given the longer coverage, the annual premium might be lower, but the overall premium outgo might be higher.

● Non-forfeiture clause 

Under whole-life plans, if you discontinue premium payment, you can continue the policy on a reduced paid-up value depending on policy terms and conditions. You can also surrender the plan before the tenure is over and avail of a surrender benefit if available..

Maturity Benefit

Term insurance plans do not offer any maturity benefit. If the life insured survives the policy tenure, the coverage is terminated, and nothing is paid. Hence, these plans have lower premium rates for a higher sum assured, as compared to other life insurance plans.

There are return of premium term insurance plans that refund the premium on maturity. Such plans come at a higher premium and offer a maturity benefit .

Whole life insurance plans, have a maturity benefit, whether you choose an endowment plan or a unit-linked insurance plan. The maturity benefit is not the refund of the premium paid but a specified benefit that is paid if the insured survives till 99 or 100 years of age in case of whole life insurance plans as per policy terms and conditions.

Death Benefit

Both term insurance and whole life insurance plans have a death benefit. However, the benefits might be different.

Under term insurance plans, the death benefit is usually the sum assured  that you choose when you buy the policy.r

Under whole-life plans, the death benefit depends on the type of policy that you choose. Here’s what you can get –

●       Sum assured on death.

●       Guaranteed^* additions or bonuses, if any, under traditional participating life insurance plans.

●       Fund value or sum assured, whichever is higher, under whole life unit linked insurance plans .

Time Period

Term insurance plans offer coverage up to a specified maximum tenure, like for example, 5 years, 10 years, 30 years or any other term as you choose.

Whole life insurance plans, as the name suggests, run for your whole life. You can get covered till 99 or 100 years of age. As such, the policy term depends on the age of the life insured.

Flexibility

Term insurance plans offer flexibility in terms of coverage. There are plans which offer different coverage variants or a choice of riders at extra cost. You can also choose a suitable policy tenure, premium payment tenure and payment frequency. Whole life insurance plans are also flexible. Here’s how –

●       You can choose a type of policy – endowment plans  or unit-linked plans

●       Endowment plans might offer different coverage variants.

●       Unit-linked whole life plans are very flexible. You can choose the premium amount, investment fund, tenure, premium paying tenure  and frequency.

●       Unit-linked plans also offer the benefit of switching, partial withdrawals, premium redirection, top-up premiums, etc., subject to policy terms & conditions.

●       Maturity benefits under ULIPs can be availed using the Settlement Option.

Benefits of Term Life Insurance

One of the most significant benefits of term life insurance is its low cost. It is the most affordable type of life insurance . Even with a small premium, you can get high coverage that helps your family in your absence. For example, with term insurance, you can choose a sum assured like ₹1 crore or ₹2 crore, which can act as a financial cushion for your loved ones.

Term insurance is also simple to understand. It is a straightforward plan that covers you for a fixed number of years. There are no hidden conditions or complex rules. If the insured person passes away during the policy period, the nominee gets the money.

Another big plus is flexibility. You can pick how long you want the coverage to last—10, 20, or even 30 years. You can also choose the payment frequency, such as monthly, yearly, etc.

It is also quick and easy to buy, especially online. Many life insurance companies offer online tools to check premiums and buy instantly.

Some plans offer extra options like return of premium, critical illness cover, or accidental death cover, making them even more useful depending on your needs at extra premium.

Drawbacks of Term Life Insurance

While term life insurance offers many advantages, it has its limitations that you should keep in mind. One of the main drawbacks is that it does not offer any money back if you survive the policy term, unless you have chosen a return of premium plan . In that case, the premiums are refunded at the end.

Another point to note is that it has a fixed coverage period. If you want protection beyond that term, you will have to  buy a new policy. This can be a problem if your health condition has changed, as the premium will likely be much higher.

Also, there is no savings or investment benefit with term plans. It is a pure protection plan. You don’t get any maturity value. So, if you are looking for insurance that also builds cash value, term insurance may not meet that need.

Benefits of Whole Life Insurance

Whole life insurance provides lifelong protection, covering you up to the age of 99 or even 100 years. This means your nominees will receive the death benefit no matter when you pass away, as long as the policy is active. This can be a great comfort to families planning for long-term financial security.

One major benefit is that it combines savings and insurance. A part of the premium you pay goes into building a cash value depending on the type of policy chosen by you. This cash value grows over time, and you can borrow against it or even withdraw funds when needed, such as during retirement, emergencies, or for big expenses.

The policy also offers a tax-free payout to your beneficiaries. The death benefit is usually not taxed, giving your family full access to the amount promised.

Another helpful point is that premiums are often fixed for life. This helps with planning your finances better. Some whole life plans may even offer bonuses over time, depending on the insurance company’s profits.

Overall, whole life insurance can be useful if you want both protection and a way to grow money slowly over time, while keeping your family safe financially in the long run.

Drawbacks of Whole Life Insurance

While whole life insurance offers many benefits, it also comes with some drawbacks. The biggest concern for many people is the high premium cost. Compared to term insurance, whole life plans are much more expensive. You have to pay more to get the combined benefits of insurance and savings.

 

These plans can also be complex to understand. There are many terms and features, like cash value, bonuses, surrender charges, and policy loans, which may confuse people who are new to life insurance.

 

Also, if you take a loan against the cash value and fail to repay it, your death benefit may be reduced. So, while it offers stability, whole life insurance may not suit everyone’s needs or budget.

Factors to Consider When Choosing Between Term and Whole Life Insurance 

1. Affordability 

●        Term plans are cheaper.

●        Whole life plans cost more but offer extra benefits.

2. Coverage Duration 

●        Term plans cover 10 to 30 years.

●        Whole life plans cover till age 99 or 100.

3. Long-term Financial Goals

●        Choose whole life if you want to save for the future.

●        The term is good if you want simple protection.

4. Flexibility

●        Both offer riders and premium payment options.

Whole life policies offer cash withdrawal and loans.

Which Policy Is Right for You?

- Your Budget 

If you are looking for a budget-friendly option, term life insurance may be a better choice. It offers high coverage at a low premium. This is helpful, especially for young earners or people with financial responsibilities like loans or dependents. You get the protection your family needs without putting stress on your monthly income. With fixed-term plans, you can also choose how long you want the cover, based on your age and goals. It is simple, affordable, and effective

- Your Long-Term Financial Goals 

If you want to combine protection and savings, then whole life insurance is a good choice. It not only provides lifelong cover but also builds cash value over time. This can help you meet long-term goals like retirement, children's education, or emergencies. The money you pay builds up slowly and is available for you to use later. Whole life insurance suits people who want returns along with coverage for their entire life.

- Your Retirement Planning Needs 

Whole life insurance can play a role in your retirement planning. It builds cash value, which grows tax-deferred. This money can be used for medical needs, travel, or emergencies during your old age. While it should not replace a pension or retirement fund, it can add to your financial support. You can also borrow against the policy’s cash value if needed. So, if you are looking for lifelong coverage and extra savings for later years, this plan could help.

How to Buy Term Insurance or Whole Life Insurance from Bajaj Allianz Life?

Buying life insurance from Bajaj Allianz Life is quick and simple. First, visit the official Bajaj Allianz Life Insurance website. Choose whether you want a term insurance plan or a whole life policy. Then, fill in your personal details like your full name, date of birth, gender, and annual income. Select the sum assured, choose any optional riders if needed, and review the benefits of the plan. Once you're happy with your selection, proceed to buy. Underwriting will be conducted, and only cases meeting the criteria will be considered for insurance. Once approved, the insurer will issue an acknowledgment, after which the payment process will be initiated.. Once this step is complete, your policy documents  will be sent to your registered email ID. Make sure to read your policy thoroughly to understand all terms. You can also use the online term insurance calculator on the website to compare plans and pick what suits your needs best.

Converting Term to Whole Life Insurance: Is It the Right Move?

Some term insurance plans come with a conversion option, which lets you switch to whole life insurance during the policy term. This is helpful if you want affordable coverage now and permanent protection later. The best part is that you don’t need to undergo a new medical test at the time of conversion. This option is useful if your income increases or if you develop health issues later. However, keep in mind that the premium for whole life insurance will be higher. Still, this flexibility can give you peace of mind and help you keep your family financially protected for life

Conclusion

 

To sum up, a term plan and a whole-life plan are equally important. However, the decision to purchase lies in the hands of the customer. Therefore, opt for the policy smartly based on your requirement of coverage and the needs of the entire family to fulfil their life goals.

FAQs 

1. What is the maximum age for term insurance?

The maximum age depends on the policy that you choose. Usually, many insurance companies offer term insurance at the entry age of 18 to 60 years, whereas some insurers may also offer insurance at entry age of 65 years.

2. Is it good to invest in term insurance?

A term insurance plan offers financial security against the risk of a premature demise. It has an affordable premium, thereby allowing you to opt for an optimum sum assured of adequate coverage. Hence, based on your financial responsibilities, income, existing debts & liabilities, coverage requirement etc., you may decide whether the term insurance plan is suitable for you or not.

3. What are the factors that make a term plan with a return of premium suitable?

The suitable term plan with a return of premium is one that offers the following benefits –

●       Optimum sum assured levels.

●       Optional riders at extra cost.

●       Affordable premiums.

 

 

4. Which policy is preferable for a young, healthy person?

For a young and healthy person, term insurance is usually a better option. It can provide high limits, at low costs, making it affordable. You can always convert it to your whole life in the future if you feel you need it and if your policy provides such option.

5. Can I cancel a whole life insurance policy if I change my mind?

Yes, you can surrender a whole life insurance policy. There may be surrender charges if you surrender early and the refund may not be the total amount of premiums you paid. Read the surrender terms under your policy carefully.

6. Is term insurance cheaper than whole life insurance? 

Yes, term insurance is typically cheaper. It provides pure life insurance coverage without the savings component that raises the cost. Whole life insurance includes savings; therefore, it costs more.

7. How many years are the longest-term life policies? 

Most insurance companies sell term plans for up to 30 or 40 years. Some companies provide coverage until age 65. The term will depend on your age and the rules of the insurance company.