Life insurance refers to insurance that covers human life. In case of death, a certain amount is paid to the candidate or beneficiary. There are several types of life insurance products offered by life insurance companies, of which the two important ones are whole life insurance and term life insurance. Entire life insurance is a type of protection plan, where the life insurance is for an unspecified period. On the other hand, term life insurance is pure protection insurance, in which the insurer offers pure risk coverage. In this plan, the amount of the policy is payable, in the event of the disappearance of the policyholder, during the term of the policy. It is only for a fixed period and, therefore, if the insured survives the whole world, nothing is paid.
Before taking any of the two policies, one must know the differences between term life and term life insurance.
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 specific period, that is, if the policyholder dies in that duration. The policy amount is granted to their nominees or legal heirs. However, if the policyholder exists after the term expires, the total amount of the policy lapses, and nothing is given as payments.
It is at the discretion of the policyholder whether to renew the policy or let the contract end if he survives past the end of the term. There is no delivery value given to the insured.
Definition of Whole Life Insurance
Whole Life Insurance is a type of life insurance that remains active throughout the insured’s life (guaranteed). The policy continues until the survival of the insured and expires on his death of him. In simple words, whole life insurance provides protection coverage for a lifetime. In an unexpected death, the sum insured, the face value, plus the bonus will be paid to the insured’s nominee(s).
The amount received will be tax-free (subject to income tax rules). The policyholder pays the fixed amount of premiums quarterly, semi-annually, or annually (depending on company rules). In some cases, surrender value is also available, should the contract holder wish to terminate the contract.
Critical Differences Between Whole Life and Term Life Insurance
The following points are worth noting regarding the difference between whole life and term life insurance:
- The insured is insured only up to a certain age in term life insurance. On the other hand, full life insurance works throughout the insured’s life.
- In Whole Life Insurance, there is no definite period specified. That is, it is not known how long the contract will continue. In contrast, in term life insurance, the substantial time is defined in the contract.
- The next difference between the two is that the 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 Term Life Insurance.
Similarities
- The contract covers the risk of death.
- Sum assured is tax-free.
- The amount is paid only in case of death.
Conclusion
This article discusses the difference between whole life insurance and term life insurance policies. Both have their pros and cons, so you can choose between these two considering your needs and priorities.
