Life insurance refers to insurance, which covers the human life, i.e. in the event of death, a certain amount is paid to the nominee or beneficiary. There are various types of life insurance products offered by life insurance companies, of which the two important ones are whole life insurance and term life insurance. Whole life insurance is a type of protection plan, wherein insurance of life is for an unspecified period.
On the other hand, term life insurance is a pure protection insurance, wherein pure risk cover is offered by the insurer. In this plan, the policy amount is payable, in the event of the demise of the policy holder, during the term of the policy. It is for a fixed term only and so if the insured survives the full term, nothing is paid.
Before taking any of the two policies, one must know the differences between whole life and term life insurance.
Content: Term Life Insurance Vs Whole Life Insurance
|Basis for Comparison||Term Life Insurance||Whole Life Insurance|
|Meaning||The insurance policy, which has a life coverage only to a specified period of time is known as a term life insurance.||The insurance policy which remains active for the entire life of the insured is known as whole life insurance.|
|Benefit||If the insured survives till the expiry of the term, no amount is paid to the policyholder.||The insurance benefit will be given to the legal heirs on the event of death of the policyholder.|
Definition of Term Life Insurance
Term Life insurance is a type of insurance policy, which covers the risk of death of human beings, but up to a specified period i.e. if the policyholder dies in that duration, the policy amount is given to his nominees or legal heirs, however, if the policyholder exists after the duration expires, the whole amount of the policy lapses and nothing is given as payouts.
It is at the discretion of the policyholder whether to renew the policy or let the contract terminate if he survives after the end of the term. There is no surrender value given to the policyholder.
Definition of Whole Life Insurance
Whole Life Insurance is a type of life insurance that remains active throughout the life of the policyholder (insured). The policy continues, till the survival of the policyholder and expires on his demise. In simple words, whole life insurance gives protection coverage for the entire life. In the event of unexpected death, the sum assured i.e. face value plus bonus will be paid to the nominee or nominees of the insured.
The amount received will be tax-free (subject to income tax rules). The fixed amount of premiums is paid by the policyholder on quarterly, half yearly or annual basis (as per rules of the company). In some cases, the surrender value is also available, if the contract holder wants to terminate the contract anytime.
Key Differences Between Whole Life and Term Life Insurance
The following points are noteworthy, so far as the difference between whole life and term life insurance:
- In Term Life insurance, the policyholder gets insured up to a particular age only. On the other hand, whole life insurance works throughout the life of the policyholder
- In Whole life Insurance, there is no definite period specified, i.e. it is not known that how long the contract will continue. Conversely, in Term Life Insurance the definite time is specified in the contract.
- The next difference between the two is, Surrender value could be given in the case of Whole Life Insurance. On the other hand, there are no such surrender benefits after the policy ends, in the case of the Term Life Insurance.
- The contract covers the risk of death.
- Sum Assured is tax-free.
- The amount is paid only in the event of death.
In this article, we discussed the difference between whole life insurance and term life insurance policies. Both have its pros and cons, so you can make a choice between these two keeping in mind your requirement and priority.