Difference Between Whole Life Insurance and Term Life Insurance Policy

What is a Whole Life Insurance Policy?

As the name suggests, a whole life insurance plan is a whole life or permanent life insurance plan. It is a plan that keeps you protected financially, and won’t expire as long as you are paying the premium payments. The best feature of a whole life insurance plan is that it offers cash value that can be used for arranging funds for your future needs. You can even take loans against the policy, and the loans will be completely tax-free. However, the income gained from the withdrawals will incur some income tax for sure.

What is a Term Insurance Policy?

When anyone talks about life insurance, he/she is most of the time talking about a term life insurance policy. The easiest to understand and offering amazing benefits like death benefits and additional riders, a term life insurance is the most popular type of life insurance policy. It can be bought for a short-term from 5 to 30 years, depending on your needs. This simple and fixed duration policy is quite affordable for a majority of people.

Difference Between a Whole Life Insurance and Term Life Insurance

Now, comes the time to learn about the differences between the two types of life insurance with a one-to-one term vs. whole life insurance.

Feature	Whole Life Insurance	Term Life Insurance
Coverage	Permanent life-long coverage	Short-Term Coverage of 5 to 30 years
Mandatory Health Check-Up	Yes	Needed in many cases, but may not be mandatory depending on the premium amount chosen
Cash Value	Cash value depends on the premium paid for the policy. One can avail a loan against the cash value of the policy	No cash value is offered and no chances of getting a survival benefit if the policy matures
Initial Premium	Higher than term life insurance plans	Very low
Long-Term Premium	Remains the same throughout the plan	Premium amount may increase with time
Death Benefit	Available	Available
Tenure	Flexible tenures with options to choose a maturity date	Fixed tenure as chosen by the policyholder at the time of the policy purchase
Critical Illness Cover	More secure in terms of the growing age of the policyholder. It will help provide financial cover for critical illness	May not provide sufficient protection for critical illness owing to growing age. For the critical illness you may need to buy additional riders
Eligibility to get Company’s Dividends	Yes	No

Pros and Cons of Term Insurance vs. Whole Life Insurance – Benefits Comparison

Pros and Cons of Term Life Insurance Policy

Pros of Term Life Insurance	Cons of Term Life Insurance
Cheaper life insurance as compared to other different types of life insurance policies.	Offers protection for only the term of the plan.
Easy to understand terms and conditions.	Fails to act as a tax saving or wealth enhancing policy.

 

Pros and Cons of Whole Life Insurance Policy

Pros of Whole Life Insurance	Cons of Whole Life Insurance
Tax-free benefits of death benefits, loans, etc.	Expensive than other forms of term insurance plans.
Gives you access to borrow for future monetary needs.	May reduce your death benefit amount if there are any outstanding loans.
Lock-in premiums for the rest of the life.	May incur surrender charges of up to 10% if you allow the policy to lapse in the initial few years of the purchase.
Guaranteed interest rate of up to 1 to 2%.	Complex terms and conditions

Which is Better? Term Life Insurance or Whole Life Insurance

Now, comes the big question of whether to buy a term life insurance or a whole life insurance? Which one is better in term vs. whole life insurance? It actually depends on your needs and expectations. Varying on your needs, both plans can be good for you. Those looking for only short-term life insurance because they can’t afford to pay the life-long premiums must opt for term life insurance. Whereas, those who want to enjoy a whole life coverage, and have no financial restraints must opt for a whole life insurance policy.

Things to Consider before buying a Term Life Insurance or Whole Life Insurance Plan

Apart from using the term vs whole life insurance calculator there are several other factors to consider before buying a term or whole life insurance plan. Have a look:

1. Age
2. Current health condition
3. Retirement plans
4. Family financial needs
5. Age of your children
6. Children’s educational needs
7. Income and capability to pay the premium
8. Debts and mortgages
9. Serious health issues or critical illness
10. Existing life insurance plans and other policies