Insurance is the foundation of sound financial planning. With an evolving life insurance market, now the life insurers are offering several plans ranging from protection and savings to investments and wealth creation. Among the different insurance plans, term insurance and whole life insurance offer the most basic and comprehensive life insurance coverage. Here, for your better understanding, we have discussed their different features and benefits so that you can identify which option is the best fit for you.
To better understand the difference between both the plans, first you should have a basic understanding of what they are.
What are Term Life Insurance Plans?
Term insurance is a type of insurance that provides life coverage for a fixed term (number of years). If the insured dies during the policy tenure, a lump sum payout equivalent to the sum assured will be paid to the nominee/beneficiary.
What are Whole Life Insurance Plans?
On the other hand, whole life insurance plans offer the insured individual a risk cover for the entire lifetime i.e. for 100 years. Whole life plans are comparatively costlier than term life plans since they provide a range of benefits to the policyholder as well as the nominee. Some of the benefits offered by whole life policy include a death benefit, maturity benefit, surrender benefit, etc. In addition to this, policyholders can also avail a loan against whole life cover, thus helping them meet their financial needs in the event of an emergency. Thus, this type of insurance plan serves as a savings cum protection instrument.
Differences between Term Life Insurance and Whole Life Insurance-
Some of the key differences between term life plans and whole life plans are as follows:
|Term Life Insurance||Whole Life Insurance|
|Cost: Term life plans are extremely cost-effective. It provides high cover at a low premium. ||Cost: Since these plans have no expiration date, these plans are comparatively costlier than term plans.|
|Coverage: Term life plans offer coverage for a specific duration, usually between 5 years and 30 years. ||Coverage: Whole life plans provide coverage throughout the life of the policyholder i.e. for 100 years.|
|Benefit offered: It provides only death benefits. ||Benefits offered: Provides death benefits along with maturity/survival benefit, based on the policy terms and conditions.|
|Loan facility: Policyholders cannot avail a loan against term insurance plans.||Loan facility: Here, the policyholders have the option to take a loan against whole life cover.|
|Pre-policy medical screening: Policyholders need not go through a pre-policy medical screening procedure before buying the policy. ||Pre-policy medical screening: Policyholders might have to go through a pre-policy medical examination before buying the policy.|
|Renewal: Term plans can be renewed at the maturity of the policy.||Renewal: No need to renew your policy since lifetime coverage is offered.|
|Payout option: There is no payout if the policyholder outlives the policy period.||Payout option: Whole life term insurance provides a guaranteed payout to the dependents of the policyholder if the policyholder outlives the policy period.|
So, what should you choose?
If you are an unmarried individual who is in the 20s or 30s, a term plan would be the best option for you. Such plans will offer a high level of protection at low premium rates.
On the other hand, if you are a middle-aged individual with several dependents, a whole life insurance plan will be a great choice. A whole life plan will provide a comprehensive risk cover with a host of benefits that can help you meet significant milestones in your future.
While choosing among both the life insurance products, carefully consider your individual needs in addition to your family. Always try to purchase such a policy that fits in your budget and gives you the lowest possible rates with the highest possible amount of coverage.