Difference Between Whole Life Insurance and Term Life Insurance Policy


5 min read

Mr. Iyer is a 58-year-old man, thinking of buying a life insurance policy, as he is soon to get into the  senior citizenship club. He wants to safeguard his family’s future but he is confused which one to buy, a term life insurance or a whole life insurance plan? There are many people like Mr. Iyer who want to buy a life insurance plan, but can’t decide which one to buy? Such people must take time out for a thorough term vs. whole life insurance.

So, get ready for a complete term vs. whole life insurance in this post. We bet after reading the complete post, you and people like Mr. Iyer will be able to make the best decision for themselves on whether to buy a whole life insurance policy or a term 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.

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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

Best Term Life Insurance Companies


The crux of the matter is that buying a life insurance policy is a wise decision, especially if you are the sole bread-earner for your family. Both term insurance and whole life insurance have their own pros and cons. Offering more flexibility in terms of cash value, whole life insurance may look lucrative to many, but being a permanent and a life-long policy it may incur more expenses as compared to other life insurance policies. So, take an informed decision, which one to buy by first identifying your needs and capability to invest.

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FAQs on Term vs. Whole life insurance

What is term life insurance?

Term life insurance offers coverage for a certain number of years, often 10, 20, or 30. If the policyholder dies during the term, the insurance company pays the selected beneficiaries a death benefit. Unless the insurance is renewed before the term expires, the policy expires and the coverage terminates.

What is whole life insurance?

Whole life insurance offers coverage for the policyholder's whole life. It combines a death benefit with a cash value savings component. The policyholder pays a premium, a portion of which is applied to the death benefit and the remainder to the cash value account.

Which is better, term or whole life insurance?

The choice between term and whole life insurance depends on your individual needs and financial goals. Term life insurance is generally more affordable and provides coverage for a specific period, making it a good option for those who need coverage for a limited time or have a tight budget. Whole life insurance is more expensive, but it offers lifetime coverage and a savings component that can accumulate value over time.

Can you convert term life insurance to whole life insurance?

Many term life insurance policies offer a conversion option that allows you to convert the policy to a whole life insurance policy without having to undergo a medical exam. This can be a convenient way to transition from a term policy to a permanent policy without having to re-qualify for coverage. However, the conversion may result in higher premiums.

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Jul 28, 2022
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PayBima Team
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.

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