Design Credits: Vishnu Madhav
Applying for a Life Insurance policy might seem like an easy task when you get one of those calls or emails from an insurance company offering you one. But before you go ahead and get one, it might be a good idea to figure out which makes the most sense for you – a Term Life or a Whole Life Insurance policy?
What?! Do those terms sound alien?
Well, if you aren’t aware of the difference between a Term Life and Whole Life Insurance policy then this article is for you. We’re going to get you familiar with the features and benefits of each of these policies.
What’s Term Life Insurance?
As the name suggests, Term Life Insurance offers coverage only for a certain time period. It is designed to help your dependents in case of your premature demise. The entire Sum Assured will be handed over to your dependents if you die within the term of the policy. Most Term Life Insurance policies have a tenure of 20 to 30 years. They usually have a high Sum Assured and a low premium amount which generally remains the same throughout the term.
What is Whole Life Insurance?
Whole Life Insurance provides lifelong coverage and also includes an investment component known as the policy’s cash value. You do not have to pay taxes on the accumulated interest amount. You can even apply for a loan or borrow cash against a Whole Life Insurance policy.
The premium amount remains the same for the complete tenure, the death benefit is guaranteed and the cash value account also grows at a guaranteed rate. Some Whole Life Insurance policies even earn annual dividends which you can leave in the account or withdraw.
The difference between Term Life and Whole Life Insurance
Speaking of the differences between the two Life Insurance policies, here goes:
|Term Life Insurance||Whole Life Insurance|
|You can choose the tenure of this policy||This policy covers your entire life span|
|You need to pay a lower annual premium||Annual premium charges are higher|
|You will not accumulate any cash value throughout the term of the policy||This policy accumulates a certain amount of cash|
|You will not be earning annual dividends||Some whole life policies help you earn a good amount through annual dividends|
Which one should you buy?
You can choose to buy Term Life Insurance if:
- You need Life Insurance coverage only for a certain period of time.
- You do not wish to pay a higher premium amount.
- You want an affordable insurance coverage, which covers your family and also gives you tax benefits.
You can buy Whole Life Insurance if:
- You want to secure the future of your family members after your demise.
- You wish to have a good amount of retirement savings for medical or financial emergencies.
- You have a life-long dependent member in your family, for whom you want a secure future even after your demise.
- You wish to leave a good amount as inheritance for your children as the policy will give you good monetary returns.
Whole Life Insurance secures your entire life span and also gives you guaranteed returns for the future; though the premium amounts are higher. But in India, most people opt for Term Life Insurance, as it’s less expensive and helps with tax saving.
Ultimately the choice is yours, depending on your income, medical history and financial stability!