Tuesday, September 28

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

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While looking for a life insurance plan, terminologies like term insurance and whole life insurance keep cropping up and can often be confusing for those not well-versed with insurance-related terms. Both, a term insurance policy and a whole life insurance policy, offer life cover. However, depending on your individual needs, you may choose one over the other. While an insurance agent or an expert can offer some help in selecting the perfect life insurance plan, it is necessary for you to know what term insurance and whole life insurance mean and how they are different from one another.

What is Term Insurance?

A term insurance policy is the simplest form of life insurance, where the policyholder pays the term policy premium to the insurance provider for a predetermined and limited number of years (the term) in return for life coverage. In case of an untoward situation, the sum assured is paid out to the beneficiaries in the form of a death benefit. There are no maturity benefits if the policyholder survives the term.

Most people go for a family term insurance plan because of the extent of the coverage despite the affordability of the premiums. Before buying a term plan online, note that such a plan does not serve an investment purpose and is more suitable for paying off debts and ensuring a comfortable life for your loved ones.

What is Whole Life Insurance?

A whole life insurance policy lasts for your whole life and offers flexibility in terms of the tenure, the frequency of the premium payment and the withdrawal of the sum assured. In the case of an unfortunate event, the sum assured plus the cash value is offered as the death benefit to the beneficiaries. Some types of whole life insurance plans also offer guaranteed returns as a maturity benefit.

Unlike a term plan, a whole life insurance plan does have an investment component while also providing life cover. There is also a cash value component that generates returns in whole life insurance. Thus, such a plan is ideal if you’re seeking investment returns and a long-term savings fund.

The difference between term insurance and whole life insurance:

Depending on your financial needs and goals, you can choose the type of insurance that works better for you. A simple comparison between the two can help you make a choice.

Term Life Insurance Whole Life Insurance
Pure protection plan for a limited pre-determined term. Life insurance with maturity benefits that offer lifelong cover.
Ideal for protecting beneficiaries from the burden of debts and ensure financial security. Ideal for building a savings fund for future financial goals.
A term plan offers high coverage at affordable premiums. Whole life insurance plans are more expensive due to the savings component.
Comes only with death benefits unless there is a Return of Premium that offers maturity benefits. Offers maturity benefit as well as a death benefit. One can also withdraw funds or take a loan against the policy to meet financial needs.


How to choose between term insurance and whole life insurance?

Making a choice between a term insurance plan and a whole life insurance plan needs an evaluation of their offerings. People who choose term plans do so because the premiums are inexpensive, but the coverage offered is high. In comparison, whole life plans become more expensive since the premiums need to be paid steadily over a longer policy term.

However, whole life insurance offers a maturity benefit, sometimes with a profit. This is something that term life insurance does not have. Hence, if you are building a fund for your future goals, then whole life insurance can surely help.

Lastly, if you choose to withdraw from a term plan, only the life cover will terminate, and you won’t lose any money. In the case of a whole life plan, the accumulated cash value or investment cannot be recovered, and a surrender charge puts a dent in the investment. But if you pull out of a whole life plan closer to the maturity date, the cost of the surrender charge will be lower.

Nowadays, leading life insurance companies offer whole life coverage along with their term insurance plans. The whole life coverage here related to the term (tenure) of the policy. For instance, the Protection Plans from TATA AIA Life Insurance can be extended up to 100 years of age. So, be careful what the ‘whole life’ coverage in your plan entails.


The choice between term life insurance and whole life insurance does not have to depend on the affordability of the plans. Rather it should be about what suits the needs of your family the best.


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