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Term Insurance vs Whole Life Insurance Which One is better for you?

  1/2/23 6:45 AM

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  1/2/23 6:45 AM   |

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A Whole Life Insurance lasts for your entire life. Term Insurance lasts for a few selected numbers of years.

With living expenses rising by the day, insurance plans are a blessing since they ensure that our family is protected in the event of an unforeseen tragedy. Losing a loved one is unimaginable, but a life insurance policy will cover the financial burden in such a scenario. In today's modern world of complexities, it has become critical to have insurance coverage to cover all types of life contingencies. 

Two of the most popular life insurance policies are whole life insurance policies and term insurance. There has always been a question of which one to choose between term and life insurance. Before selecting a suitable option from the two, it is critical to understand the features, benefits, and differences between them.

What is Term Insurance?

term insurance policy provides life cover for a specific duration or term, and a death benefit to the beneficiary in the event of the unfortunate demise of the policyholder. One of the main benefits of a term plan is that the premium is relatively low and affordable for most individuals. As a result, this policy attracts a lot of young professionals who are just starting out in their jobs and have a lot of financial responsibilities and life milestones to meet. The more you delay  you purchase of term insurance coverage, the higher your premium will be. 

What is Whole Life Insurance?

This plan covers you for your entire life, up to 100 years. For this extended coverage, you are required to pay a slightly higher premium than you would for a term insurance policy. However, in addition to the death benefit, you receive maturity benefits if you survive the policy term.

What is the difference between Term Insurance and Whole Life Insurance?

Having a life insurance plan is the foundation of good financial planning. As a result, conducting some preliminary research before making a final decision will assist you in selecting the best insurance policy. While term insurance provides life coverage for a set period, a life insurance policy offers lifelong coverage, usually up to 100 years.

Understanding their critical differences can help you make sound investing decisions to guarantee your financial future. So, let's compare term and life insurance benefits to see if you should get a term or a traditional life insurance policy.
 

Benefit

Term Insurance Policy

Whole Life Insurance Policy

Tenure

Offers fixed policy tenure for a limited period based on your selection of policy term during the purchase of the policy.

Offers whole life protection, up to 100 years of age, for all insurance policies.

Death Benefits

Only provides a death benefit that is paid out to the beneficiaries if the policyholder meets with an untimely demise within the policy tenure.

Provides both death and maturity benefits. The Maturity benefits are paid out to the policyholder if they survive the policy term.

Savings vs. Risk Coverage

Covers the financial risk of the demise of the policyholder.

If you simply want to cover the risk of death, and don’t want to pay higher premiums, consider investing in term insurance.

Provides an element of building savings.

If you wish to build an investment portfolio in addition to a life insurance policy, you should consider purchasing a traditional life insurance policy.

Premiums

Quite affordable and offer a high sum assured for a low premium.

Traditional life insurance plans come with higher premiums, but their benefits are proportional to the asking price.

Tax Benefits

Tax deductions on annual premiums, up to Rs. 1.5 lacs, u/s 80C of the Income Tax Act of 1961.

Tax exemptions on the death/maturity benefits u/s 10D.

Tax deductions on annual premiums, up to Rs. 1.5 lacs, u/s 80C of the Income Tax Act of 1961.

Tax exemptions on the death/maturity benefits u/s 10(10D).

Surrender and Paid-up Value

There is no surrender or paid-up value with term insurance policies. Therefore, if you cannot pay the stipulated premium, the term policy will lapse or terminate, and you might not be able to revive it. Also, if the term plan is discontinued, you receive nothing, even if you have timely paid all previous premiums.

Life insurance plans provide some benefits even if premiums are delayed or stopped. If you pay the premium for a particular duration (usually for three years) and subsequently discontinue payment, the policy is considered paid up.

The sum assured under a paid-up life insurance policy is lower than the original, but the policy continues to be active. You can also cancel your life insurance policy by surrendering it. When you do so, you are entitled to a surrender value.

 

Summing Up!

Both life insurance and term insurance have their advantages. Term insurance plans are essential for everyone since they provide financial protection in the event of a premature demise. Knowing the distinction between term and whole life insurance policies can help you select the best plan for you and your loved ones.

 

 

Siddhant Dubey - Writer & Photographer

Siddhant works as a freelance content writer who is interested in a wide range of spheres from photography and personal finance to cooking. He is also an aspiring photographer striving to showcase life around him through his vision. 

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