Term Insurance & Whole Life Insurance: Meaning and Differences
Life insurance plans provides for the financial protection of your entire family as well as allows them to accomplish their life goals even in your absence.
Before purchasing either of the two policies, it is essential to understand the basics. Both plans are different from one another. Hence, study them thoroughly, and make the final decision of purchase based on your needs. In this article, you’ll find out the difference between term life insurance and whole life insurance. Take a look:
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 upto 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:
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:
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. Moreover, the plan might also offer bonus additions, if any, during the policy tenure to enhance the corpus.
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. You can also surrender the plan before the tenure is over and avail of a surrender benefit. The paid-up and surrender benefits fall under the non-forfeiture clause.
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.
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.
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 insurance plans.
- Fund value or sum assured, whichever is higher, under whole life unit linked plans.
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.
Term insurance plans offer flexibility in terms of coverage. There are plans which offer different coverage variants or a choice of riders. 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.
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.
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 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 which make term plan with a return of premium suitable?
The suitable term plan with a return of premium is one which offers the following benefits –
- Optimum sum assured levels.
- Optional riders.
- Affordable premiums.
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