Term Insurance vs. Whole Life Insurance: Which One Should You Choose?

You can choose from multiple types of life insurance policies today. In fact, one of the most popular picks is undoubtedly term insurance, where coverage is present for a specific duration. If you pass away in this period, the insurer will pay your nominees a fixed amount. There’s no other savings, investment, or cash value feature present.

On the other hand, there is whole life insurance. You will be able to get life coverage till your demise or the age specified in the policy, often up to 100 years. Your nominees will get the death benefit if you pass away anytime within this period and there’s a savings feature as well. A part of the premium helps accumulate savings and may also generate income. It will grow at a rate determined by the insurer, typically through bonuses or fund returns, and you can get this cash value through loans or withdrawals in your lifetime too, depending on the policy terms. Which one should you choose? Here is a closer look at the major differences between these two plans.

Differentiating Between Term and Whole Life Insurance Plans

Let us take a closer look at the differences between term insurance and whole life insurance plans.

• Duration: Whole life insurance plans are for your lifetime, while term plans come with specific tenures that you can choose as per your needs.
• Premium amounts: Whole life insurance costs more for the longer term and the cash value component. Term insurance is relatively affordable for a higher amount of coverage, although premiums may increase with age or health conditions.
• Savings element: There is no savings/investment feature in term plans, while whole life insurance policies have a savings feature and may provide cash value or income benefits based on the policy design.

What Should You Keep in Mind?

You should always choose between term insurance and whole life insurance, depending on your specific requirements. Keep some factors in mind, including the affordability factor for your chosen coverage (don’t compromise on the coverage amount), the tenure of the coverage, and long-term goals. Whole life policies have savings components that may help you meet long-term needs down the line. At the same time, term plans are ideal if you want coverage till your children start working or your loan is repaid. Similarly, whole life insurance works if you have several dependents till an advanced age and want to leave behind an estate/legacy, although other tools like wills or trusts may also be necessary for comprehensive estate planning.

Choose after you evaluate your life stage, future goals, obligations, debts, and necessary coverage and tenure needs. You should also be able to afford the premiums payable for the coverage you want. In this case, sometimes it makes sense to start off with a term plan first to secure your family’s financial future first. Thereafter, if you feel the need, you can explore converting to a whole life plan if your insurer allows this option. This may be costlier, but you may be able to better afford it at a more advanced stage of your career and finances. Compare the two plans thoroughly and take professional advice, if required, before finalising your decision.