Buying life insurance is one of the most important decisions that a person can take. But, people who are not familiar with the types of life insurance can often wonder the difference between term insurance and whole life insurance. Term insurance and whole life insurance plans both offer different benefits and features that are appropriate for different kinds of customers. In this article, we’ll be comparing both plans to help readers decide which one is more appropriate for them.
What is Term Insurance?
Term insurance which is also called pure life insurance is a type of life insurance where the premium is paid by the insured for a set amount of years. If the insured passes away during the active period of term insurance, a lump sum amount of money is provided to the policyholder’s nominee/family.
The insured can choose the coverage amount and tenure of the term insurance plan. However, if the life insurance term plan expires and the insured is still alive, no money is given to the insured or their nominee. However, these days, insurance companies have a lot of flexibility and options when it comes to term insurance plans, such as rider options like critical care cover, disability cover etc. Term Insurance plans are generally cheaper than whole life insurance plans.
What is Whole Life Insurance?
Whole Life Insurance is a type of life insurance that provides cover to the policyholder and their nominee/family for the complete duration of their lives. Apart from a lump sum payout at the time of the insured’s death, whole life insurance also provides maturity benefits, meaning the money that policyholders have invested over the years is returned as well, along with interest. In these policies, premiums may be collected throughout the life of the insurer or for a fixed period.
There are many more benefits of whole life insurance compared to a life insurance term plan. The insured can take out loans against their life insurance policy at low-interest rates. They can choose to decide when to cash out of their insurance policy and withdraw their investments. Most importantly, the invested money is returned to the insured/their family. However, as a result, whole life insurance policies are much more expensive than term insurance plans.
Difference between Term Insurance and Whole Life Insurance
- Premiums are considerably higher in whole life insurance policies compared to term insurance plans.
- Premiums for life insurance plans are fixed, whereas premiums of term plans can change over time.
- In the case of whole life insurance policies, the premiums are returned whereas if a term plan expires before the death of the policyholder, no amount of money is paid out.
- Life Insurance policies provide cover throughout the lifetime of the policyholder. Term insurance plans provide coverage for a fixed tenure.
- The insured have the option to take out a loan against their whole life insurance policy, whereas this is not available for term insurance plans.
- There can be a surrender charge that whole life insurance policyholders may have to pay when surrendering their plan and cashing out their policy. No such charge is applicable on the term insurance plan as the premiums are not returned.
Term Insurance Vs Whole Life Insurance: Which one should you choose?
If you are looking for simple life insurance coverage that costs less and are not worried about getting your premiums back, term life insurance is a good option. Younger people are advised to go for term insurance as they are cheaper but provide good coverage. Moreover, for individuals looking for coverage for a specific amount of time, term plans are the ideal choice.
On the other hand, if you are looking for a whole life coverage, and consider life insurance to be an investment, you should opt for whole life insurance. While it’s true that whole life insurance plans are more expensive, they provide coverage throughout one’s life, and the invested premiums are returned. Older people with dependents are often advised to choose whole life insurance plans. They choose to go with whole life insurance, as term insurance plans for older applicants are considerably more expensive while providing lesser benefits.