HomeLife InsuranceTerm Insurance vs. Whole Life Insurance: What's The Difference

Term Insurance vs. Whole Life Insurance: What’s The Difference

When we think about good financial planning, then we simply cannot miss insurance. With a plethora of insurance companies available in India, the choice of insurance becomes a tough task.

The insurance providers offer so many plans with many features and benefits that include investments, savings, and protection and let one create an enormous wealth corpus. Amongst all the different insurance products available whole life insurance and term insurance provide the utmost simple and comprehensive life insurance coverage.

Before we get into understanding the differences between these two, let us primarily understand the importance of insurance.

What is Term Insurance?

A regular term insurance policy is suited for those individuals who need protection for a certain time frame and it usually offers high coverage. The premiums of a life insurance policy are on the expensive side, so in that manner, a term insurance policy is the most preferred and feasible choice.

The nominee mentioned in the policy by the policyholder receives a death benefit in case the policyholder passes away while the policy is still active. The sum can be obtained either as a lump sum or in installments. It is to be noted that this has no cash benefit even though the policyholder is still alive and the policy tenure has come to an end.

What Is Whole Life Insurance?

As the name suggests, a whole life insurance plan is a life insurance security plan, which will go on till the time the policy is active. This plan offers insurance as well as an investment benefit and also offers cash value.

In case you need the money in any emergency, the accumulated money that you had paid premiums for the policy can be easily used. However, it is to note that this borrowed sum is a loan, which needs to be paid later. In any case, if one is unable to pay the sum the cash value of the policy is reduced along with the death benefit.

Difference between Term Insurance vs. Whole Life Insurance

Let us take a glance at the table below to understand the key difference between term insurance and whole life insurance.

Whole Life Insurance Term Insurance
It lasts till the time the policy is active It lasts for a specific term only
It has a cash value This has no cash value
The premiums are on the expensive side The premiums are pocket-friendly comparatively
Though the premium is slightly on the higher side, it remains constant throughout At every policy renewal, the premium will also increase
Suitable for the ones who are looking for long-term investment and insurance Suitable for the ones who need short-term apt coverage likely
In case of any financial emergency, withdrawal can be made This also provides different rider options to enhance the plan

Term Insurance vs Whole Life Insurance

Within the whole life insurance policy, the dependents of the policyholder will be provided with a guaranteed payout. On the other hand, with regular term insurance, in case the policyholder outlives the policy term no payout will be provided.

A term insurance plans are also referred to as a pure protection plan, which essentially offers a death benefit to the nominee mentioned in the policy in case the policyholder passes away during the policy tenure, however, whole life insurance essentially provides cover for a lifetime.

When it comes to regular term insurance, the coverage has limitations up to the policy period which is 70-80 years of age. In the case of a whole life insurance policy, the coverage is extended easily till the time the policyholder is alive. Moreover, within a regular term life insurance plan, the policy term most likely is up to the age of 85 years. Besides, when the policyholder outlives the policy term there is no payout as such.

As whole-life term insurance plans offer a guaranteed payout, it is of much help to pay off any unpaid liabilities like a loan or any debts, which implies that there is no financial burden upon the family members.

See, Let’s Take Example

For instance, Mrs. Gupta buys a term life insurance plan at the age of 35. This implies that she is eligible to avail of the coverage benefit until 65 years of age. Supposedly, if Mrs. Gupta demises at 66 years of age, then under such a circumstance no payouts will be paid to her dependents.

Likewise, under the same circumstance if Mrs. Gupta had bought a whole life term insurance then the dependents of Mrs. Gupta will receive the sum assured that is the death benefit. The policy term could be 99 or 100 years and above on the premise of the specific plan opted by the policyholder.

So anyone who is looking forward to permanent insurance should ideally opt for the whole life insurance plan. Well, this means that till the time you pay the premiums, the insurance will remain intact. Moreover, it builds the cash value, and the growth of the cash value is guaranteed.

What is Cash Value?

Well, the cash value is essentially the money that is paid to the insurance provider that is allowed to be kept by you if you have stopped paying the premium amount. So, in case you cancel a whole life insurance policy the cash value will be returned to you, which does not happen in the case of a regular term insurance plan.

These are some of the key advantages of a whole life insurance policy, but if you are looking forward to more features then note it will along with more complexities. Whole life insurance offers higher premiums than term life insurance in the initial years.

Moreover, during a whole life insurance policy renewal, the premium will remain the same; unlike the term life insurance plan wherein the premium increases at the time of policy renewal. One can easily stop paying the premium at any point and can convert the cash value into a paid-up policy with the dividend-paying whole-life plan. The whole life insurance premiums can be paid by the earned cash values.

The term insurance premiums are cost-effective when compared to a whole life insurance policy. More than that, if the difference in premium of both whole life insurance and term insurance is invested on its own, returns could be easily generated. Any investor who is looking forward to savvy investments should choose a term life insurance policy whereas the remaining investors can choose the whole life insurance policy.

How Important is Insurance?

The world we live in is overflowing with weaknesses and threats. Individuals, families, associations, properties, and assets are introduced to different sorts and levels of threats. These consolidate the threat of disasters to life, prosperity, assets, property, etc.

While it isn’t commonly possible to shield unwanted events from occurring, the budgetary world has made things that save individuals and associations against such incidents by compensating them with money-related resources.

Insurance is a money-related item that decreases or clears out the cost of setbacks or effects of disaster achieved by different sorts of dangers.

Besides protecting individuals and associations from various kinds of potential threats, the insurance fragment contributes on a very basic level to the general financial advancement of the nation by offering security to the working of associations and making long-stretched budgetary resources for modern exercises.

Notwithstanding different things, the insurance segment in like manner invigorates the decency of speculation assets among individuals and makes vocations for millions, especially in a country like India, where both business and reserve funds are noteworthy.

Now, let us briefly understand the concept of both whole life insurance and term life insurance one by one.

Wrapping it Up

Choose the insurance that suits your pocket and fulfills your requirements. Whether you wish to go with a whole life insurance policy or a regular term insurance policy, you can avail of it online most easily and conveniently.

Choose the best term insurance plan after understanding your necessities and plan your finances accordingly. On the premise of the stage of your life, one can easily choose between both term insurance policy and whole life insurance policy respectively.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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