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Term Life Insurance vs Whole Life Insurance

TeamAckoNov 7, 2023

Life insurance is a crucial component of financial planning. However, there is no one-size-fits-all cover. You need to understand your needs and buy a suitable policy that will meet those needs and offer you peace of mind. This is where the following article will help you out as it highlights the key difference between Term Life Insurance and Whole Life Insurance so that you can make informed decisions.

Term Life Insurance vs Whole Life Insurance

Contents

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Difference between Term Life Insurance and Whole Life Insurance

Some of the key differences between Term Life Insurance and Whole Life Insurance are as follows. Note that these are generic points, please check applicable policy wordings for details.

PARAMETER

TERM LIFE INSURANCE 

WHOLE LIFE INSURANCE

Meaning

A Term Plan is the most traditional insurance plan that aims to provide death benefits to the dependents of the policyholder in the event of the policyholder’s untimely demise during the policy term. This is the most economical option as a high sum can be assured at an affordable premium. 

Whole Life Insurance plans are crucial as they provide coverage to the policyholder throughout their life. These can also come with maturity and/or survival benefits (usually after 99 years of age) as a secondary feature. 

Payout

The payout is received by the nominee if the policyholder passes away during the policy term. A Term Plan usually does not come with any maturity benefits unless some additional life insurance rider like the Return of Premium Rider has been added at the time of purchase.

The payout is received in the form of death or maturity benefits usually up to the age of 100 years. The policyholder can choose between a staggered payment option and a lump sum.

Permanent coverage

Only provided until the end of the policy term.

Provided, up to 100 years of age.

Premium

The premium paid is usually low as it does not have any investment component. The amount of premium paid towards the Term Plan may change upon renewal of the policy term.

Premiums are usually more expensive as the policy aims to build a cash value. Also, the premium amount does not change over the period of time.

Medical examination

May or may not be required depending on the conditions of the insurer.

Required.

Eligibility for loans

No

Yes

Term Life Insurance vs Whole Life Insurance: Which one is better and why?

The choice between Term Plan and a Whole insurance plan can be clearly made by looking at the policyholder’s individual needs. Here’s an example considering age and premium. 

In the case where a potential policyholder is in his 20s or early 30s a Term Life Insurance would be best. It might be difficult to buy a Term Plan in the late 50s or 60s. In that case, even if an insurer agrees to provide a Term Plan it will come with a high rate of premium as the chances of mortality increase with age. 

On the other hand, if the client is in his 40s then a Whole Life Insurance plan would be a better choice as a Term Plan would cost more at this stage. Therefore, the investment would be a wise choice not just for him but also for the dependents.

Tips to choose Whole Life Insurance

Here are some pointers to keep in mind while choosing Whole Life Insurance. 

  • This is the best option to get coverage for a lifetime. However, in the case of non-payment of premiums, the policy might lapse. Therefore, financial liabilities and commitments must be well evaluated.

  • Age should be considered before purchasing the plan. In the case of very young adults, a Whole Life Insurance plan might not be a very affordable option. 

  • Riders must be chosen wisely as these are optional benefits provided at the time of the purchase of the policy. These make the plan more comprehensive and give the policyholder the opportunity to personalise it according to their needs.

Tips to choose Term Insurance

Here are some pointers to keep in mind while selecting Term Insurance. 

  • A Term Plan is the best option for anyone with huge financial obligations. In case of the demise of the policyholder the sum assured in life insurance provides financial security to the dependents and the financial liabilities can be taken care of like paying off mortgages, outstanding debts or children’s education.

  • In case the client does not wish to take advantage of the cash value of a Whole  Life Insurance plan, a Term Plan can be the best choice to make. The money saved by not paying high premiums can be invested elsewhere.

  • In cases where there is a history of critical illnesses or any pre existing illnesses, a Term Plan is a better choice to make, as it will be more affordable compared to a Whole Life Insurance plan.

  • Those looking for coverage for only a specific period of time should choose a Term Plan over a Whole Life Plan.

  • A basic Term Plan can be customised according to the needs by adding riders. This makes the overall policy more robust.

Frequently Asked Questions

Here’s a list of FAQs related to Term Life Insurance vs Whole Life Insurance.

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What is the policy term of a Whole Life Insurance policy?

A Whole Life Insurance is usually valid till the policyholder reaches 100 years of age.

Can I take a loan on a Whole Life Insurance policy?

Yes, a Whole Life Insurance Plan makes the policyholder eligible to take a loan. For more details, please refer to the terms and conditions stated in the policy document.

Can I change the nominee of an existing insurance policy?

Yes, the nominee of the policy can be changed by the policyholder. 

Can I add riders/add-ons to an existing insurance plan?

Add-ons/riders can be added to a policy at the time of purchase or at the time of the renewal of the policy.

What happens at the end of the policy term of a Term Plan?

A basic Term Plan does not call for maturity or survival benefits unless a Return of Premium Rider has been selected.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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