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Difference Between Term vs Whole Life Insurance

26-07-2022 |

If you are in your mid-20s, you might have heard about the importance of insurance by now. According to webster’s definition of insurance, insurance is a financial product that aims to compensate one against any sort of financial loss. Given the present state of economic affairs, increasing inflation, and rising living costs, having insurance has become a necessity, not a luxury.

Of the several insurance plans available, term life insurance and whole life insurance are the most popular. Both term insurance vs life insurance aim to provide financial support to you and your loved ones, but the scope with which they provide security varies.

Before buying either insurance, it is crucial to know the inner differences between term vs whole life insurance. That way, you will understand which one fits your budget and needs.



What is a Term Plan?

Term insurance or term plans are known as the most basic and simplest form of life insurance in the insurance market. Term plans provide financial support to the family members of the breadwinner or the income earner of a family. The term life insurance benefits are in the form of a pre-decided death benefit given to your nominees (chosen family members) in the unfortunate eventuality of your death.

The death benefit received helps your family continue to live their lives and fulfil their goals. It becomes the primary or secondary source of income in your permanent absence. Term plans also offer additional protection with riders# that secure you against critical illnesses, accidents, and physical disabilities arising out of them.



What Is Whole Life Insurance?



Whole life insurance is a type of insurance that provides the twin advantages of a death benefit and a maturity benefit. So, you get financial support both in the eventuality of your demise and even if you outlive the tenure of the whole life insurance plan.

Whole life insurance provides a guaranteed1 monetary benefit, called a maturity or survival benefit if you survive the tenure of the insurance plan. They help you secure your family while also building a corpus for the future.

Whole life insurance plans serve the dual purpose of life insurance and savings-oriented wealth creation. Whole life insurance plans are often non-linked, i.e., free from any fluctuations in the capital/ trading market. They offer much more flexibility and guarantee to the investor.



Term vs Whole Life Insurance

This table will help you understand the core differences between life insurance policy term vs whole life insurance.

Parameter

Term plans

Whole life insurance plans

Death benefit

Term insurance plans only provide a pre-decided death benefit on the death of the policyholder/ buyer.

Whole life insurance plans also provide a pre-decided death benefit on the death of the policyholder/ buyer.

Scope of death benefit coverage

Higher than whole life insurance

Lower than term insurance

Maturity benefit

Term life insurance plans do not provide any maturity or survival benefits in the scenario of the policyholder surviving the term plan.

There are some term plans with a return of premium3 option that gives the premiums paid by the policyholder back to them.

One of the whole life insurance benefits is that they provide dual advantages of a death benefit and a maturity/ survival benefit in the eventuality the policyholder survives the whole life insurance plan.

Premium price

The premium rates for term plans are the lowest compared to other insurance plans. The reason they are affordable is that they only provide a death benefit to the policyholder.

The premium rates for whole life insurance plans are higher than term plans. This is because apart from providing a death benefit, whole life insurance offers the element of savings, wealth creation, and other benefits.

Bonuses2

Term plans do not give any bonuses for staying invested in it. It is a pure protection plan.

Some whole life insurance plans give policyholders various bonuses2 for staying invested. These bonuses2 are in the form of loyalty additions and guaranteed1 additions.

Withdrawal/ loan facility

You cannot take a loan against term plans in case of an immediate financial need. You cannot make an early withdrawal because term plans do not offer this feature.

You can make a pre-withdrawal in whole life insurance plans after the specified mandatory lock-in period expires. Depending on the insurer, you can also take a loan against whole life plans in emergencies.

Surrender value

If the policyholder stops paying the premiums in a term plan, the term insurance plan will automatically lapse after a grace period of 30 days or so. Term plans do not offer any surrender value, nor do you get back any of the premiums paid.

You can exit a whole life insurance plan mid-duration, but not without facing the consequences. You lose the maturity benefit and only get a portion of the premiums returned to you. If you stay, invested for 3-5 years, and then exit, you get a surrender value.

Tax* benefits

U/s 80C of the Income Tax* Act, 1961, you can claim tax* returns up to ₹1,50,000 in a year on the premiums paid towards a term insurance plan.

Under section 10(10D) of the Income Tax Act, 1961, the death benefit received under the term insurance plan is also exempt from tax* deductions.

U/s 80C of the Income Tax* Act, 1961, you can claim tax* returns up to ₹1,50,000 in a year on the premiums paid towards whole life insurance.

Under section 10(10D) of the Income Tax* Act, 1961, the death benefit and maturity benefit received are also exempt from tax* deductions.

 


To Conclude

Considering the differences in term insurance vs life insurance will help in evaluating the benefits between the two. If you are aware of your financial needs, you can opt for the insurance type that will align with those needs. With Tata AIA life insurance policy, you can get coverage up to 100 years of age.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

View all posts by Tata AIA Life Insurance

Frequently Asked Questions

What is better – term insurance or whole life insurance?

Life insurance term plans fulfil different purposes and cannot be pitted against each other. Both have their pros and cons. But term insurance serves the singular purpose of providing death coverage. And whole life insurance helps create compounded wealth apart from providing life insurance protection. What is better for you will depend on your financial goals.

What is the tenure of a term plan and a whole life policy?

The average tenure of a term plan ranges from 10-25 years, while a whole life policy can last even up to 100 years of age.

Disclaimers

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • 2These bonuses are not guaranteed in nature. The Company may declare Cash Bonus rate annually in advance. The Cash Bonuses if declared, will be applicable provided all due premiums have been paid.

  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.

  • 1Guaranteed Returns/Payouts depend on Plan Option, Policy Term, Premium Payment Term and Age at entry

  • 3Return of premium shall be the return of Total Premiums Paid (excluding loading for modal premiums and discount) by the policyholder at the end of the Income Period