Home / Life Insurance / Articles / Life Insurance Comparisons / Term Life Insurance vs Whole Life Insurance
Term Life Insurance vs Whole Life Insurance
TeamAckoSept 25, 2024
Life insurance is a crucial component of financial planning. However, there is no one-size-fits-all cover. You need to understand your needs and buy a suitable policy that will meet those needs and offer you peace of mind. This is where the following article will help you out as it highlights the key difference between Term Life Insurance and Whole Life Insurance so that you can make informed decisions
Contents
- What is Term Insurance?
- What is Whole Life Insurance?
- Difference between Term Life Insurance and Whole Life Insurance
- Term Life Insurance vs Whole Life Insurance: Which one is better and why?
- Tips to choose Whole Life Insurance
- Tips to choose Term Insurance
- 6 Types Of Whole Life Insurance Plans
- 5 Types Of Term Insurance Plans
- Determine Which Plans Work For You
- Choosing the Right Insurance Plans In India
- Conclusion
- Frequently Asked Questions
What is Term Insurance?
Term insurance is a type of life insurance that provides life coverage to policyholders for a certain period, which is called the term. It could be 5, 10, 20 or more years.
The policyholder pays premiums at regular intervals. In the unlikely scenario that the insured individual dies within the policy term, the insurance company pays the death benefit to the beneficiary. The death benefit is entirely tax-free.
If the policyholder survives till the end of the policy period, there is no payout. Thus, term insurance is called a pure and straightforward life plan. This plan is ideal for people who only want life protection.
Before purchasing term insurance, it is important to understand its characteristics and why you should choose them.
What is Whole Life Insurance?
Whole Life Insurance is a type of permanent life insurance that provides coverage for the entire lifetime of the insured individual as long as premiums are paid. It offers both a death benefit and a cash value component.
With whole life insurance, your "cash value" increases over time. Consider this pool as a savings account within your insurance. If you require access before reaching the age of 100, you can take out a loan from it at any moment. What is the best part? The money your beneficiaries get after your death is tax-free.
Difference between Term Life Insurance and Whole Life Insurance
Lets look at the key differences between Term Life Insurance and Whole Life Insurance. Note that these are generic points, please check applicable policy wordings for details.
| PARAMETER | TERM LIFE INSURANCE | WHOLE LIFE INSURANCE |
|---|---|---|
| Meaning | A Term Plan is the most traditional insurance plan that aims to provide death benefits to the dependents of the policyholder in the event of the policyholder’s untimely demise during the policy term. This is the most economical option as a high sum can be assured at an affordable premium. | Whole Life Insurance plans are crucial as they provide coverage to the policyholder throughout their life. These can also come with maturity and/or survival benefits (usually after 99 years of age) as a secondary feature. |
| Payout | The payout is received by the nominee if the policyholder passes away during the policy term. A Term Plan usually does not come with any maturity benefits unless some additional life insurance rider like the Return of Premium Rider has been added at the time of purchase. | The payout is received in the form of death or maturity benefits usually up to the age of 100 years. The policyholder can choose between a staggered payment option and a lump sum. |
| Permanent coverage | Only provided until the end of the policy term. | Provided, up to 100 years of age. |
| Premium | The premium paid is usually low as it does not have any investment component. The amount of premium paid towards the Term Plan may change upon renewal of the policy term. | Premiums are usually more expensive as the policy aims to build a cash value. Also, the premium amount does not change over the period of time. |
| Medical examination | May or may not be required depending on the conditions of the insurer. | Required. |
| Eligibility for loans | No | Yes |
Term Life Insurance vs Whole Life Insurance: Which one is better and why?
The choice between Term Plan and a Whole insurance plan can be clearly made by looking at the policyholder’s individual needs. Here’s an example considering age and premium.
In the case where a potential policyholder is in his 20s or early 30s a Term Life Insurance would be best. It might be difficult to buy a Term Plan in the late 50s or 60s. In that case, even if an insurer agrees to provide a Term Plan it will come with a high rate of premium as the chances of mortality increase with age.
On the other hand, if the client is in his 40s then a Whole Life Insurance plan would be a better choice as a Term Plan would cost more at this stage. Therefore, the investment would be a wise choice not just for him but also for the dependents.
Tips to choose Whole Life Insurance
Here are some pointers to keep in mind while choosing Whole Life Insurance.
A Term Plan is the best option for anyone with huge financial obligations. In case of the demise of the policyholder, the sum assured in life insurance provides financial security to the dependents, and the financial liabilities can be taken care of, such as paying off mortgages, outstanding debts, or children’s education.
If the client does not wish to take advantage of the cash value of a Whole Life Insurance plan, a Term Plan can be the best choice. The money saved by not paying high premiums can be invested elsewhere.
In cases where there is a history of critical illnesses or any pre-existing illnesses, a term plan is a better choice as it will be more affordable than a whole life insurance plan.
Those looking for coverage for only a specific period of time should choose a Term Plan over a Whole Life Plan.
A basic Term Plan can be customised according to the needs by adding riders. This makes the overall policy more robust.
Tips to choose Term Insurance
Here are some pointers to keep in mind while selecting Term Insurance.
This is the best option to get coverage for a lifetime. However, in the case of non-payment of premiums, the policy might lapse. Therefore, financial liabilities and commitments must be well evaluated.
Age should be considered before purchasing the plan. In the case of very young adults, a Whole Life Insurance plan might not be a very affordable option.
Riders must be chosen wisely, as these are optional benefits provided at the time of the policy purchase. These make the plan more comprehensive and give the policyholder the opportunity to personalise it according to their needs.
6 Types Of Whole Life Insurance Plans
There are different types of whole life insurance, each with unique features and benefits.
| Participating Whole Life Insurance: This insurance pays dividends on the insurer's surplus earnings. Dividends can be withdrawn as cash, used to lower premiums, or used to buy more insurance. | Non-Participating Whole Life Insurance: This kind has level premiums and a fixed death benefit for life. The primary benefit is predictable expenses, but it does not produce dividends. |
| Level Premium Whole Life Insurance: Level Premium Whole Life Insurance provides guaranteed level premiums for life. Early premiums help in later years when annual payments are insufficient to cover escalating insurance expenses. | Single Premium Whole Life Insurance: The policy is funded by a single lump sum premium payment made beforehand. This fully pays for the coverage, and no more payments are necessary. |
| Limited Payment Whole Life Insurance: Limited Payment Whole life insurance requires a certain period of premium payments (e.g., 10 years) but provides everlasting coverage. | Indeterminate Premium Whole Life Insurance: Your payments change annually depending on the insurer's revenues and costs. |
5 Types Of Term Insurance Plans
Similar to whole life insurance, term insurance offers a variety of options to suit different individuals' needs and preferences.
Level Term Insurance
Decreasing Term Insurance
Convertible Term Insurance
Renewable Term Insurance
Group Term Insurance
Level Term Life Insurance
Level term insurance provides a fixed sum assured and a stable premium throughout the policy period. The death benefit stays unchanged, guaranteeing that the nominee receives a specified sum in the event of the policyholder's death.
Decreasing Term Insurance
Decreasing term insurance is intended to coincide with certain financial responsibilities, such as home loans or other ongoing debt. The sum guaranteed steadily decreases during the policy's duration, reflecting the reduced liability.
Convertible Term Insurance
Convertible term insurance plans allow the policyholder to change their term insurance policy into another form of life insurance plan, such as endowment or whole life insurance, within a set time frame.
Renewable Term Insurance
Renewable term insurance policies allow policyholders to extend their policy term after the initial policy matures. It provides the benefit of continuing coverage without requiring medical underwriting again.
Group Term Insurance
Employers or organisations provide group term insurance to their workers or members as a kind of life insurance coverage. They often provide blanket coverage amounts to all members, avoiding the need for individual underwriting.
Explore ACKO Life Flexi Term Plan
Talking about term insurance, ACKO Life Flexi Term Plan offers flexible coverage as you can increase or decrease your sum assured to provide your loved ones with a financially stable future. With minimum documentation required, you can be sure your loved ones will get financial assistance, giving them peace of mind and support when required.
| Adaptable Sum Assured | Flexible Policy Tenure | Flexible Payout Options |
| Will Creation Service | Affordable Premiums | Easy Claim Process |
Determine Which Plans Work For You
Selecting the best life insurance coverage may be difficult, particularly if you have a lot of options. These insurance meet various financial objectives.
Whole Life Insurance vs ACKO Life Flexi Term Plan
| Situation | Recommended Policy |
| Need pure life insurance protection | ACKO Life Flexi Term Plan |
| Have maxed out other retirement savings options | Whole Life insurance |
| Budget-conscious and prefer lower premiums | ACKO Life Flexi Term Plan |
| Desire flexibility to adjust coverage as needed | ACKO Life Flexi Term Plan |
| Looking for long-term investment | Whole Life insurance |
| Uncertain about future financial needs | ACKO Life Flexi Term Plan |
| Prioritise leaving a legacy or inheritance | ACKO Life Flexi Term Plan |
| Prefer a fully digital, hassle-free experience | ACKO Life Flexi Term Plan |
| Need the ability to change beneficiaries easily | ACKO Life Flexi Term Plan |
Choosing the Right Insurance Plans In India
When selecting the appropriate life insurance policy, individuals must evaluate their financial objectives, earnings, possessions, debts, and dependents.
Determine your needs: Decide if you need insurance for retirement planning, asset accumulation, family protection, or any combination.
Consider your alternatives for coverage: Recognize the many insurance options (such as universal life, whole life, and term), then select the one that best suits your requirements and financial objectives.
Consider affordability: Examine premium prices to ensure they are within reasonable financial reach. To get the best deals, compare estimates from several insurance providers.
Review policy features: Take a close look at the policy's features, including the duration of coverage, available death benefits, payout schedule, and any extra benefits or riders that may be available.
Reliable Insurer: Evaluate the insurer's financial stability by looking up their ratings for financial strength to ensure they can pay their bills in the long run.
Conclusion
Term insurance offers coverage for a specific period (the term), but life insurance covers your lifetime for higher premiums. This is the main distinction between the two types of insurance. Therefore, be sure the insurance plan you choose meets your needs. You can now confidently apply for the right insurance plan and secure the financial stability of your loved ones.
Frequently Asked Questions
Here’s a list of FAQs related to Term Life Insurance vs Whole Life Insurance.
What is the policy term of a Whole Life Insurance policy?
A Whole Life Insurance is usually valid till the policyholder reaches 100 years of age.
Can I take a loan on a Whole Life Insurance policy?
Yes, a Whole Life Insurance Plan makes the policyholder eligible to take a loan. For more details, please refer to the terms and conditions stated in the policy document.
Can I change the nominee of an existing insurance policy?
Yes, the nominee of the policy can be changed by the policyholder.
Can I add riders/add-ons to an existing insurance plan?
Add-ons/riders can be added to a policy at the time of purchase or at the time of the renewal of the policy.
What happens at the end of the policy term of a Term Plan?
A basic Term Plan does not call for maturity or survival benefits unless a Return of Premium Rider has been selected.
What Tax Advantages Do Life And Term Insurance Plans Provide?
Term and life insurance policies provide policyholders with tax advantages under Indian income tax regulations. Section 80C of the Income Tax Act allows for tax deductions on premiums paid for certain insurance. Section 10(10D) of the Income Tax Act also exempts the beneficiary's death benefit from taxes.
What are the age requirements For purchasing insurance?
While the maximum age restriction varies depending on the kind of coverage, the minimum age to get an insurance policy is typically 18 years old. The maximum age restriction for whole life insurance is normally 65 years old.
Can I Get Insurance Under My Child's Name?
Certainly, you may get insurance under your child's name. The purpose of kid insurance plans is to safeguard children's future educational costs and other financial obligations financially.
What Should I Look For When Purchasing An Insurance Coverage?
To ensure you get the policy that best suits your needs and budget, evaluate the various policies and insurers before buying a life or term insurance policy online. To fully comprehend the terms and conditions of the policy, including the coverage, premium payment schedule, and renewal terms, you should also carefully study the policy documentation.
Can I Get Term And Life Insurance Online?
In India, buying both term and life insurance online is possible. Many insurance providers provide online buying alternatives, frequently more affordable and convenient than buying a policy in person.
Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.
Explore more on Comparison Articles
Recent
Articles
Netherlands Work Visa: All You Need to Know for Indian Applicants
TeamAcko Nov 13, 2024
Delhi Set to Roll Out WhatsApp-based System for Seamless Challan Payments
TeamAcko Nov 8, 2024
Seychelles Visa for Indians: A Guide
TeamAcko Oct 25, 2024
The UK Youth Mobility Visa: A Summary
TeamAcko Oct 25, 2024
Australian Golden Visa Scheme: All that You Wanted to Know
TeamAcko Oct 25, 2024
All Articles
Want to post any comments?
ACKO Term Life insurance reimagined
ARN:L0072|*T&Cs Apply
Check life insurance
Acko Technology & Services Private Limited
#36/5, Hustlehub One East, Somasandrapalya, 27th Main Rd, Sector 2, HSR Layout, Bengaluru, Karnataka 560102
Acko Group Companies:
Download our ACKO app now!
Products
Company
Support
Car Insurance
Bike Insurance
Health Insurance
- Health Insurance
- Health Insurance Plans
- 10 Lakhs Health Insurance
- 50 Lakhs Health Insurance
- 1 Crore Health Insurance
- Health Insurance Plans For Family
- Individual Health Insurance
- Cashless Health Insurance
- Women's Health Insurance
- Health Insurance For Parents
- Health Insurance For Children
- Health Insurance For Senior Citizens
- Health Insurance Premium Calculator
- Waiting period in health insurance
- Health Insurance Portability
- Super Top Up Health Insurance
Group Health Insurance
Travel Insurance
CIN: U74110KA2016PTC120161
The use of images and brands are only for the purpose of indication and illustration.