“Whole Life Plan vs. Term Life: Key Differences, Pros & Cons Explained”

Life Insurance is a legally binding contract between the two parties, namely the insurance provider & the policyholder, wherein the insurer guarantees to pay the beneficiaries in case the insured dies against the premium amount paid by the policyholder during his/ her lifetime.

The choice of the right insurance policy might differ from one individual to another, as what may suit you is not a possibility for someone else; it is not. In this article, let us understand the difference between the two types of life insurance plans, namely, whole life & term plans.

What is Whole Life Insurance?

Whole life insurance is a kind of Life Insurance that covers the entire life of the policyholder, i.e. about 99 to 100 years of age, guaranteeing the death benefits to beneficiaries upon their sudden demise. The partial premium paid by the policyholder is allocated towards the sum assured, & the remaining portion is invested. The amount of profit is paid to the policyholder if either they survive till the completion of the maturity period or they decide to withdraw the funds, depending on the fund’s performance. Additionally, some of the policies pay dividends to the policyholder, helping them achieve their financial obligations post-retirement.

What is Term Life Insurance?

Term Life Insurance is a type of life insurance where a specific amount is mentioned to the nominee to be received on the policyholder’s demise. It is a cost-effective life insurance plan that is considered quite useful due to the financial compensation being offered to the dependent family members. A Term Insurance policy is vital as it offers comprehensive life protection coverage to the family members of the policyholder in case of a sudden demise.

Difference Between Whole Life & Term Life Insurance Plan

The following are the differences between a whole life plan &a term life insurance plan:

Benefits of Whole Life Insurance

• It offers benefits for the complete life of the policyholder, which means the death benefit can be received by the nominees on the death of the policyholder, irrespective of their age.
• A part of the premium is diverted towards the cash value account, which grows over a period of time.
• The premium amount remains fixed throughout the policy tenure.
• Dividends under this plan are not guaranteed, but depend upon performance.
• There is no tax on the cash value that grows over a period of time; it requires paying taxes only if any amount is withdrawn from the cash value account.

Benefits of a Term Plan

• They are a less expensive option.
• The plan can be bought either from an insurance company or through its website.
• It offers flexibility in premium payments, i.e., the premium can be paid monthly, quarterly, or annually, depending on your suitability.
• It also allows for adding additional riders to enhance the plan at an additional cost.
• Get a deduction of tax on the amount of premium paidu/s 80C, a maximum of up to INR 1,50,000.

Drawbacks of Whole Life Insurance

• It is a complicated process as it includes accrued dividends, cash value, premium payments, etc.
• Under this plan, the cash value of the plan grows, but its rate of growth is not that high in comparison to other investment options.
• If you voluntarily cancel the plan before its due date, a surrender fee would be charged, hence reducing the cash value.

Drawbacks of a Term Plan

• Premiums are on the higher side with increasing age.
• There are no bonus or maturity benefits offered.
• This plan automatically gets terminated if the premium is not paid.

How to Purchase a Whole Life or a Term Plan Online?

Provided are the steps to purchase a whole life or a term plan online:

Step 1: Visit the online webpage of the insurance provider company.

Step 2:Provide some basic details, such as gender, name, occupation, date of birth, mobile number, etc.

Step 3:Provide some additional details, such as education,occupation, annual income, &smoking habits.

Step 4:Choose the appropriate age between 99 & 100 years if you want to opt for a wholelife plan.

Step 5:Go through the list of plans available & choose one that suits you the most.

Step 6: To buy a plan, make a payment towards the plan chosen by the preferred mode.

How to Choose an Appropriate Insurance Plan?

In case you are not sure which plan to choose according to the financial protection & budget, you should definitely try a term insurance calculator. Let us look into the steps:

• Evaluate the financial duties & objectives.
• Assess the coverage amount & policy tenure required depending on the financial duties & objectives evaluated above.
• Review your budget to ensure the regular payment of premiums.
• Consult a financial advisor who will help you make an informed decision.

Whole Life Vs Term Plan – Which is Better?

• To choose a plan between the two, i.e. whole life or term plan, the choice completely depends upon the financial objectives & security required. Let us suppose you require a plan which takes care of your children & gives them financial security in your absence.
• Opt for a term plan, where the premium cost is also low. On the contrary, where you require permanent coverage for complete life, a whole life policy would be a better option, as it offers tax-free cash accumulation choices, survival benefits, etc.
• If you are a young individual, like in your 20s or early 30s, opt for a term plan. This is because the premium rate would be quite higher in the late 50s or 60s.
• If an individual is in their 40s, opt for a whole life plan as a term plan would be costlier at this age.