In India, the insurance companies offer different insurance plans like term plan, whole life insurance plan, etc. all of which have different features and benefits. Read on to know more about the difference between these two types of life insurance policies.
If you are planning to buy life insurance for your family, you may probably have heard of the terms – term insurance policy and whole life insurance policy. While both the policies provide the death benefit in the event of the policyholder’s demise during the policy tenure, these plans are different in more than one way.
What is Term Life Insurance Policy?
Term insurance is a type of life insurance plan where you pay the premium for a fixed period (the policy duration) and the insurance company will pay the death benefit to the nominee in the event of your untimely death during the policy term. But if your policy matures or if you outlive the policy term, you do not get any maturity benefit.
The term insurance policy, which is also often referred to as pure life insurance policy, has a nominal premium and it offers high sum assured. When you buy a term policy, you have the flexibility to choose the insurance tenure and the sum assured. However, the benefits of a term insurance policy are limited as compared to other types of life insurance policies.
What is whole life insurance policy?
Whole life insurance policies are a complete insurance package that provides flexibility in terms of choosing the policy tenure, the sum assured, and offer maturity benefits as per the terms and conditions mentioned in the policy document. Based on your requirement, you can opt for paying the premium for a specific period or throughout life.
The whole life insurance policy offers a wide range of benefits such as the ability to avail loan from the insurance company at a low-interest rate, get a survival benefit in lumpsum, maturity benefits, etc. The main objective of whole life insurance policy is to offer life cover for the policyholder.
Understanding the difference between term plan and whole life insurance plan
The premium for term insurance policies are much lower than the premium for whole life insurance, and it is paid only for a specific term.
In case of term insurance, the policy does not get a premium refund in any scenario. But the whole life insurance provides a premium payout if you survive through the policy tenure as selected at the time of buying the policy.
The term life insurance policies have a fixed duration and the benefits are applicable only till the policy is active.
The whole life insurance has flexible tenure, you can get insurance protection till you reach 100 years.
- Cash value
If you have a whole life insurance policy, the premium you pay is invested for your protection as well as in other investment avenues. The insurer declares a bonus if they earn a profit on such investments and you get a part of the bonus. With term insurance, you do not get such a benefit.
The whole life insurance policy acts as both saving and protection plan, whereas, the term life insurance policy is a pure protection policy that has no other additional benefits apart from the death benefit.
Which Policy Should You Buy?
Investing in a term life insurance plan would be suitable for you if you are a person in 20s or 30s. These plans offer complete protection against life at an affordable premium. Also, if you have any medical condition, the term plans are the best option to get the highest benefit in the shortrun.
You can consider buying both a term plan and a whole life policy if you are a married person with children. The whole life policy would provide you cash value, and the term policy will provide your dependant the highest monetary benefit in the event of any unfortunate incident.