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Features
Ref. No. KLI/22-23/E-BB/492
Term insurance provides coverage for a specific period, offering pure protection without any cash value accumulation, while whole life insurance covers you for your entire life and includes a cash value component that grows over time.
Having a life insurance cover is the foundation of sound financial planning. Over the years, as the life insurance industry has evolved significantly, the insurers are offering several policies ranging from protection to savings and retirement plans to suit the varying needs of the insurance buyers.
Life and term insurance remain popular choices among policyholders when choosing insurance. If you are a first-time insurance buyer, it is natural that you may feel confused about which type of policy is better and which one you must buy. To make an informed decision, you must know about the difference between the two.
The term and whole life insurance policies differ in several ways. Let us analyze the difference between term vs whole life insurance.
Parameters |
Term Insurance |
Whole Life Insurance |
Coverage Duration |
Provides coverage for a particular period. If the policyholder dies during the term, beneficiaries receive a death benefit. |
Offers coverage for the insured person’s entire lifetime as long as premiums are paid. Regardless of when the policyholder passes away, beneficiaries receive a death benefit. |
Premiums |
Have lower initial premiums, making it more affordable for individuals seeking basic coverage. |
Has higher initial premiums due to the lifelong coverage and the added cash value component. |
Cash Value Component |
Does not have a cash value component; it only provides a death benefit. |
Accumulates cash value over time, which policyholders can borrow against or withdraw, offering a savings and investment component. |
Payout at the End of the Term |
If the policyholder outlives the period, there is no payout or benefit. |
Guarantees a death benefit payout, regardless of when the policyholder passes away. |
Flexibility |
Offers flexibility in choosing the term length based on specific needs. |
Offers limited flexibility; changes in coverage or premium adjustments can be more complex. |
A term insurance policy is the simplest form of life insurance. In a term plan, the insurance company offers a lump sum amount to the policyholder’s family member as a death benefit in the event of their unfortunate demise during the policy period. However, if the policyholder survives the policy term, they do not receive any maturity or survival benefit.
Term life insurance comes with a number of benefits that must be adhered to before choosing a plan. Let us take a closer look at the advantages that a term plan can offer you:
Because term life insurance premiums are typically less expensive than whole life insurance, it is more affordable for people on a tight budget.
Term life insurance offers straightforward coverage, focusing on providing financial protection for a specific period.
Policyholders can select the length of the term based on their needs, such as until their children are grown or their mortgage is paid off.
While offering lifelong coverage and a savings component, life insurance comes with drawbacks like higher initial premiums and limited investment returns compared to other investment options. Some common disadvantages of life insurance are:
One significant disadvantage of term insurance is its limited coverage period. Unlike permanent life insurance policies such as whole life or universal life, which provide coverage for the insured’s entire lifetime, term insurance policies offer protection for a specified term.
Another notable disadvantage of term insurance is the absence of cash value accumulation. Unlike permanent life insurance policies, which often come with a savings or investment component that accumulates cash value over time, term insurance policies do not build any cash value. This means that if the policyholder outlives the term of the policy, they do not receive any return on the premiums paid.
Whole life insurance is a comprehensive life insurance policy with a savings component, apart from offering death benefits. As the name suggests, whole life insurance lasts for an entire life, and you get a lump sum amount even if you surrender or discontinue the policy. This policy also allows partial withdrawal of the accumulated corpus.
Whole Life Insurance offers lifelong cover and a unique financial advantage by combining a death benefit with a cash value component. This benefit grows over time, providing both security for your loved ones and the potential for long-term savings. Take a quick look at these benefits briefly:
Life insurance plans offer coverage for the insured’s entire life, ensuring that beneficiaries receive a death benefit regardless of when the policyholder passes away.
Whole-life policies build cash value over time, which can be withdrawn for various purposes.
Premiums for whole life insurance remain consistent throughout the policyholder’s life, providing predictability.
While offering lifelong coverage and a savings component, life insurance comes with drawbacks like higher initial premiums and limited investment returns compared to other investment options. Some common disadvantages of life insurance are:
Whole life insurance typically comes with higher premiums compared to term life insurance due to the lifetime coverage and cash value component.
The investment aspect of whole life insurance can be complicated, and policyholders may not achieve the same returns as they would from other investment vehicles.
Whole life insurance policies offer less flexibility than term policies, as changing coverage or reducing premiums can be challenging.
Choosing between term insurance and whole life insurance is a significant decision that can have long-term implications for your financial security and that of your loved ones. Both types of insurance offer distinct benefits and considerations, and understanding the key factors can help you make an informed decision. Here are some factors to consider before buying term insurance or whole life insurance:
Term Insurance
Provides coverage for a specific period. It is suitable for individuals looking for temporary coverage to protect against financial obligations such as mortgages or education expenses.
Whole Life Insurance
Offers coverage for the entire lifetime of the insured. It provides long-term financial protection and can be used as an estate planning tool to leave a legacy for beneficiaries.
Term Insurance
Generally term insurance has lower premiums compared to whole life insurance, making it more affordable for individuals with limited budgets. Premiums remain fixed for the duration of the term but may increase upon renewal.
Whole Life Insurance
Typically involves higher premiums due to the lifetime coverage and cash value component. Premiums remain level throughout the policy’s duration, providing predictability and stability in financial planning.
Term Insurance
Does not accumulate cash value since it is designed solely for death benefit protection. Once the term expires, there is no residual value or return on investment.
Whole Life Insurance
Builds cash value over time, which grows tax-deferred and can be accessed through policy loans or withdrawals. The cash value component provides a savings element and can be used for supplemental retirement income or emergency funds.
Term Insurance
Offers flexibility in terms of coverage duration and affordability. Policyholders can choose the term length based on their specific needs and financial goals.
Whole Life Insurance
Provides less flexibility compared to term insurance due to the lifetime commitment and higher premiums. However, it offers stability and guarantees in terms of coverage and cash value accumulation.
Short-Term Needs
If you have short-term financial obligations such as paying off a mortgage or supporting children until they graduate, term insurance may be more suitable.
Long-Term Planning
If you want to ensure lifelong financial security for your loved ones or leave a legacy, whole life insurance can provide permanent protection and asset accumulation.
While different insurances serve distinct purposes and offers unique benefits, one question frequently arises: What happens when the term of these policies comes to an end?
At the end of the term, typically ranging from 5 to 30 years, term life insurance policies expire. Here’s what happens:
Whole life insurance policies provide coverage for the insured’s entire lifetime and offer additional features such as cash value accumulation. Here’s what happens at the end of the term (which is essentially the insured’s lifetime):
So, which policy should you buy in India– term life vs whole life insurance? The truth is there is no such thing as ‘best insurance.’ Now that you are aware of the difference between term and whole life insurance policy, you must choose the one that suits your needs.
If you are a first-time insurance buyer, it is better to purchase a term plan. If you buy it at a young age, you can benefit from the affordable premium and get a policy with a high coverage amount. It is an excellent way to protect your family from future uncertainties.
1
The longest term for life insurance policies typically ranges from 30 to 40 years, depending on the insurance provider and policy terms.
2
At the end of the term life insurance, the coverage expires, and the policyholder no longer has insurance protection. There may be options to renew the policy or convert it to a permanent policy, depending on the terms of the policy.
3
Term insurance provides coverage for a specific term, such as 10, 20, or 30 years, and does not accumulate cash value. In contrast, whole life insurance offers lifelong coverage and includes a savings or investment component that accumulates cash value over time.
4
For a young and healthy individual, term life insurance is often the better option due to its affordability and sufficient coverage for specific financial obligations or protection needs. Whole life insurance may be more suitable for individuals seeking lifelong coverage and cash value accumulation.
5
Yes, whole life insurance policies typically have a surrender value, allowing policyholders to cancel the policy and receive a portion of the accumulated cash value. However, surrendering a whole life insurance policy may result in penalties or fees.
6
Yes, term insurance is generally cheaper than whole life insurance, especially for young and healthy individuals. Term insurance premiums are typically lower because they provide coverage for a specific term and do not include a cash value component.
7
The death benefit proceeds received from both whole life and term life insurance policies are generally not taxable to the beneficiaries. However, any interest or investment gains accumulated within a whole life insurance policy may be subject to taxation.
8
Other types of permanent life insurance include universal life insurance, variable life insurance, and indexed universal life insurance. These policies offer lifelong coverage and may include cash value accumulation, but they differ in terms of flexibility and investment options.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
Features
Ref. No. KLI/22-23/E-BB/2435
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
