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Term vs Whole Life Insurance: Which One You Should Buy?

Rohit Sapra Rohit Sapra 30 October 2017

Term Life and Whole Life are the most popular variants of life insurance plans. The primary purpose of life insurance in itself is replacing the income lost due to death of the insured. Here's a break up of both variants, so you can make the best choice for your loved ones based on your needs.

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Buying life insurance provides financial independence to your loved ones if anything unfortunate happens to the bread winner of the family. It is a financial safety net for your family so that they can fulfil their dreams even in your absence. Life insurance with its various jargons and legality can be very confusing in itself. Throw in the various types of plans available in the market and you might get lost in making the decision of what to buy. Today we are going to compare two popular life insurance plans for you i.e. Term Life Insurance and Whole Life Insurance, so that you can make an informed decision for yourself.

What is a Term Insurance Plan?

Term Insurance is the cheapest form of Insurance. It offers pure protection, it is basically designed to protect your family members from any financial loss arising from your untimely death. There is no maturity benefit offered. There are many variants available apart from the plain vanilla Term Insurance plan like increasing death benefit, decreasing death benefit, life stage options, critical illness cover, terminal illness cover and so on.

What is a Whole Life Insurance Plan?

Whole life Insurance is more like a financial investment. It offers life cover throughout the life of the individual, so in case of death, family members receive the death benefit. They accumulate bonuses or loyalty additions or guaranteed additions for the entire duration of the plan. It is a perfect tool for planning your retirement, which even allows you to take a loan. Whole Life Insurance Plans sometimes come with an age ceiling limit as well, where 100 years is the usual upper limit.

FeaturesTerm life insuranceWhole life insurance
Choice of Policy Term
Lifelong Insurance Coverage
Constant Premium
Lower Premiums
Guaranteed Life Insurance Payout
Payout at end of policy term
Bonus or Loyalty Additions
Surrender Value✓ (Single and Limited Pay Only)
Policy Loan
Comprehensive Protection through Riders

Term Life Insurance

Term Life Insurance is the right choice for people who are looking for just a pure protection solution i.e. cover against loss of an income source on their death.

Pros of Term Life Insurance:

  • Low-cost, pocket friendly option for financially protecting your spouse, children and parents.
  • Want a replacement to their income to help their family cover the day-to-day bills when they are no longer around.
  • Need life cover for a specified period i.e. till children are financially independent
  • Need a policy that helps pay off their loans and outstanding debts

Cons of Term Life Insurance:

  • Life Cover only for a specified period of time.
  • No benefits are paid if you survive the term of the plan.
  • Like -motor insurance, you can recover your premiums paid only if something bad happens.

Whole Life Insurance

Whole Life Insurance is the right choice for people who are looking beyond the primary need of providing an income source in their absence.

Pros of Whole Insurance:

  • A life cover that lasts a lifetime, a protection without an expiry date.
  • Looking for a life insurance product that pays and protects.
  • Looked upon by people who want to leave a legacy for their loved ones and at the same time reap the rewards of their investments.

Cons of Whole Life Insurance:

  • Premiums are high which can lead to choosing a lower life cover to match paying capacity.
  • Chances of being under insured are very high.
  • Not the best option for wealth creation when compared to other investment avenues available in the market.

Is term better or whole life insurance better?

If you're wondering which is a better choice a conclusion can only be drawn after factoring in elements like age and the intention behind getting an insurance plan. An individual who is in his/her 20s should consider going for a term insurance plan and later converting it into a whole life insurance cover. Doing so can help save on the premiums. If this is the route you plan to choose, make sure to only do so after being thorough with what is term insurance plan. Those in their 40s or above can think about opting for a whole life insurance plan. Not only will it provide coverage throughout the life of the insured, it might also be cheaper than term plans at this stage of life.

Which is best option for you?

The answer entirely depends on an individual’s need and choices. A person may choose a term life insurance, if he wants to keep his premium commitments low and invest the extra money saved in other investment vehicles. He might be focussed on building a good retirement corpus before his term plan ends, so not having life insurance protection does not matter anymore. Plus, the primary goal of providing for family members during his working years is accomplished.

On the other hand, if someone is looking for a life insurance plan that doesn't expire and also wants to keep on building up wealth which can be utilized when the need arises, whole life is good option. Or if he wants to make withdrawals or surrender the policy or if he lives up to maturity wants payout, again whole life could be the best option for them.

In short, the best way to summarize the two variants is that a Term Insurance Plan offers protection for a defined period of time at cheapest rates, Whole Life Insurance Plan comes with a cash value, which helps build funds within the tenure of the policy.

It is like choosing between renting a house versus owning a house. The point being, term insurance is more like renting a house, while whole life cover is like owning a home. The decision of whether to purchase term life insurance or whole life insurance should be based on your financial needs and goals. Life insurance is a very flexible and powerful financial vehicle to meet multiple life stage objectives, from providing financial security to building financial assets and leaving a legacy.

Rohit Sapra
Written by Rohit Sapra
Rohit Sapra, a licentiate, and currently an SME, is a seasoned insurance professional with previous work experience from Kotak and Birla Sun Life Insurance.