Life Insurance

Term Life vs Whole Life Insurance.

Life insurance products come in many different variants. Each variant is designed to cater to a particular insurance need which you might have. While some plans provide basic insurance coverage, others are designed to create savings too. There are some plans which fulfill your child planning and retirement need while some help in wealth maximization. Term plans and whole life plans are two plans which provide basic life insurance coverage. Though these plans are different from one another, many of you perceive them to be same. So, let’s understand term and whole life plans separately and how they are different from one another –

What are term plans?

Term plans are basic life insurance plans which provide only life insurance coverage. If the insured dies during the chosen term of the plan, the sum assured is paid.

For instance, Mr. A buys a term plan of Rs.25 lakhs for 20 years. If Mr. A dies during the term of 20 years, the plan would pay Rs.25 lakhs to his family. If Mr. A survives the term of 20 years, no benefit is payable.

Term plans come cheap and allow you to insure yourself at optimal sum assured levels.

What are whole life plans?

Whole of life insurance plans cover you for your entire lifetime. These plans do not have a definite tenure. Coverage is allowed till 99 or 100 years of age. If the insured dies before attaining 99 or 100 years of age, the sum assured is paid as death benefit.

For instance, Mr. A, aged 40 years, buys a whole life plan of Rs.25 lakhs. The plan would continue till Mr. A reaches 99/100 years of age (as the case may be). Mr. A dies when he is 85 years old. His family would, then, receive Rs.25 lakhs as the death benefit.

Difference between term and whole life plans

Though both plans pay the benefit only in case of death, they are different from one another. The primary difference is the policy duration. While term plans have a fixed coverage tenure (chosen by you), whole life plans don’t. These plans run till the insured attains 99/100 years. Thus, term plans might or might not pay the benefit but in case of whole life plans, payment of the death benefit is assured.

Besides this basic difference, there are other differences too which are as follows –

Types

Term plans come in different variants which are as follows –

  • Increasing term plans – the sum assured increases every year by a fixed percentage
  • Decreasing term plans – plans designed for loan repayments. The sum assured under these plans decrease every year by a fixed amount
  • Monthly income plans – these plans pay the death benefit in monthly incomes
  • Return of premium term plans – under these plans, the premiums paid during the policy tenure are refunded back in case of maturity

Compared to these, whole life plans are also offered as savings oriented plans. Many endowment and unit linked plans are offered to individuals that provide whole life coverage. These plans pay a death benefit in case of death before reaching 99/100 years of age. In case of survival till 99/100 years, a maturity benefit is paid.

Premium Rate

Term plans are the cheapest and cost less than whole life plans. Whole life plans are dearer because they offer coverage for a longer duration. Moreover, if the plan is bundled as an endowment or ULIP, the premium would be quite high compared to term insurance plans.

Premium Payment

Term plans, usually, require regular premium payments. You have to pay premiums for the entire duration of the policy. Under whole life plans, however, limited premiums are payable. The company understands the fact that the ability of pay premiums would diminish as you age and retire. Therefore, whole life plans require premium payments only up to a certain age when you can afford premium payments.

Other Benefits

Term plans are pure risk plans which pay only a death benefit. In case of whole life plans, however, you can avail other benefits too. If you take an endowment or unit linked whole life plan, you can get bonus, guaranteed additions, loans and also a surrender value in your policy.

The Bottom Line

Both term and whole life plans are different. You should understand this difference and choose a plan which would be suitable for your requirements.