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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.
L&C/Advt/2022/Jul/1633
