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Confused between term and whole life insurance in India? Explore the comparison to make an informed choice for your financial security. Read now!
Updated on: 30th August, 2023
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.
While choosing insurance, life and term insurance remain popular choices among policyholders. 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. This blog will discuss the basics of term and life insurance, the benefits of these policies, and their drawbacks.
A term insurance policy, commonly called a pure protection plan, 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.
Read in detail: What is Term Insurance?
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.
Like two sides of a coin, term life plans also have a few drawbacks that should not be ignored. As an informed customer, one must be aware of these drawbacks too. Here are some of the stumbling blocks with term insurance policies:
Once the term ends, the coverage terminates. If the policyholder outlives the policy period, they receive no payout and may need to seek new coverage, which could be more expensive due to increased age.
Term life insurance does not collect cash value over time, so it does not offer any investment or savings component.
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.
The term and whole life insurance policies differ in several ways. Let us analyze the difference between term insurance and whole life insurance:
Whole Life Insurance
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.
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.
Offers flexibility in choosing the term length based on specific needs.
Offers limited flexibility; changes in coverage or premium adjustments can be more complex.
So, which policy should you buy in India– term insurance or 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 high coverage amount. It is an excellent way to protect your family from future uncertainties.
Make sure that you compare the different term plans online and purchase a policy from a reputed insurance company like Kotak Life Insurance. Buying a policy online is simple. You must submit an application form, comply with the documentation, and you will receive your policy documents after verification.
The longest-term life policies can extend up to 40 years. However, the specific term lengths offered by insurance companies can vary, and some may provide policies with terms even shorter than 40 years.
At the end of the term, the coverage provided by term life insurance expires. If the policyholder is still alive, there is no payout or benefit. Some term life policies may offer the option to renew or convert the coverage into a permanent life insurance policy.
Ref. No. KLI/22-23/E-BB/2435