Term Insurance vs Whole Life Insurance: Which One You Should Buy?
Updated On Jun 22, 2021
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Term insurance is a type of life insurance wherein premium is paid by the life assured for a fixed period of time during which the death benefits will be paid out in case of the death of the life assured. In case the policy matures and the life assured successfully survives the policy term, no benefits are paid out to the beneficiaries. Term insurance plan is one where you receive a high sum assured by paying nominal premium for a fixed tenure.
Whole life plans are complete life insurance packages that provide flexibility in choosing sum assured, tenure etc. while providing survival benefits according to policy documents. In these policies the premium may be collected for a specific tenure or throughout the life of the assured.
Below is a discussion on the basic differences between term insurance plans and whole life insurance policy. This should be read carefully by the purchaser in order to make a perfect decision.
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Difference Between Term Insurance Plan And Whole Life Insurance Plan
Listed below are some differences between term insurance plans and whole life insurance policies:
1. Premium Payable
Term insurance policies can be availed by paying lower premium than whole life policies. Premium is constant throughout the policy tenure in case of whole life plans, while term insurance plans employ dynamic premium when the term of the policy is set to be renewed. Premiums are not refunded in any scenario unless a genuine claim against the death of the life assured is made, in which case a hefty sum assured will be paid out. Whole life plans provide premium payouts in case the life assured survives the policy tenure as selected while purchasing the policy.
Term plans offer fixed tenures during the course of which the benefits of the policy are applicable. Whole life plans have longer tenures usually applicable till the life assured reaches 100 years. Benefits will be paid out when the assured turns 100 or passes away, whichever is earlier.
3. Cash Value
In case of the whole life terms the premiums paid by the life assured are invested in the protection fund as well as in other investment avenues. If the life assured makes profit on these investments, they declare a bonus a part of which is given to the assured. Term insurance does not have this feature. Whole life plans act as both saving and protection plans while term insurance is a pure life insurance plan with no additional benefits apart from death benefits.
So prior to buying term or whole life insurance policies it is advisable to precisely understand both types of insurance. The similarities and differences are very important aspects to be considered before buying any one of them. Also, it has to keep in mind the age of the purchaser and also the requirement of buying one.