If you are planning to buy a life insurance plan and got confused in choosing between a term life insurance and whole life insurance, this information is for you.
No doubt, both the plans offer benefits in case of the policyholder’s demise, there are differences in terms of the policy tenure, cash value, and premium amount, among others.
According to HDFC Life, following are the four major distinguishing aspects of term insurance (term life insurance) and life insurance (whole life insurance).
Term Insurance vs Life Insurance: Basic difference
Term insurance refers to the payment of premium only for a fixed period of time. In case of the policyholder’s untimely death during this period, the insurance provider is liable to pay the death benefit amount to the beneficiary or the nominee.
However, in case the policyholder survives during the term of the plan, no maturity benefit is provided.
Whereas life insurance plans offer dual benefits of investment and protection for the entire life of the insured.
Whole life insurance plans generally come with an upper age limit of 100 years. Such a plan also offers the advantage of cash accumulation that builds during the entire period of the policy.
Term Insurance vs Life Insurance: Premium
Term insurance plans often have a lower premium than whole life plans. It is also important to know that in a term plan, the entire premium amount is allocated to providing insurance coverage.
In the case of a life insurance plan, part of the premium is used for insurance coverage while the rest is invested.
In case the policyholder withdraws, surrenders or lives up to the maturity period, the accumulated amount is returned at the sum assured value.
Policyholders may also enjoy the benefit of bonus in case profits are earned on the invested amount.
Term Insurance vs Life Insurance: Tenure
Term plans offer coverage for a fixed tenure, such as 5, 10, 15, or 30 years. Whole life insurance plans, however, come with flexible tenures and are usually applicable till the policyholder reaches 100 years of age.
Term Insurance vs Life Insurance: Cash value
As mentioned above, a part of whole life insurance premiums is invested in financial instruments. A cash value is, therefore, built over a period of time.
This may be used by the policyholder to borrow loans at a low interest rate. Additionally, whole life insurance policyholders may withdraw a part of the cash value during the tenure of the policy.
On the other hand, term plans do not offer such benefits to policyholders.