When exploring life insurance plans, you will come across two main types of coverage – whole life insurance and term life insurance. While the benefits of these plans do overlap to a great extent, there are also several distinctive points that set whole life and term life plans apart. If you are new to buying life insurance, the similarities and differences between these two plans might leave you confused. In this article, we break down the coverage you can expect from these two types and the differences between them to help you understand which life insurance plan might suit you best.
What is covered under whole life insurance?
A whole life insurance plan covers you for as long as you live, against death, terminal illness, total permanent disability, and some extent of critical illness. Whole life insurance is further subdivided into participating and non-participating whole life insurance plans. Participating whole life plans offer you the chance to gain non-guaranteed returns in the form of bonuses from profits made by the insurance provider. Non-participating plans offer no such bonuses and only cover you against conditions specified in the plan. You can further enhance your coverage with riders.
What is covered under term life insurance?
A term plan offers coverage for a limited duration selected by you when you buy coverage. The plan covers you against death, terminal illness, and total permanent disability. You may enhance your coverage with riders.
Term vs. whole life insurance – which one is suitable for you?
The choice between these two forms of coverage can prove to be a bit tricky, especially if you are new to buying life insurance. To help you make a thorough evaluation of the two, we have listed out their features for you:
Duration of coverage
As stated earlier, whole life insurance plans cover you for the entirety of your lifespan. Term life insurance covers you for a period pre-selected by you. For instance, you may choose to purchase a term plan that covers you for 20 years until your home mortgage is paid off in full.
Term life insurance plans do not accumulate any cash value whereas whole life plans do. This cash value is the amount that the insured individual receives if they terminate coverage early by surrendering the plan. Participating whole life insurance plans also have non-guaranteed bonuses or dividends that accumulate based on the performance of the participating funds. These bonuses can get added to the plan’s cash value and offer potential to grow your money.
Whole life insurance plans are expectedly more expensive than term plans. This is because of two main reasons – firstly, your whole life insurance plan covers you for the entirety of your life and secondly, because whole life plans carry cash value which does not exist with term plans.
Early termination of coverage
If you decide to stop your term life plan before its expiry date, you will not receive any benefits. If you choose to end your whole life plan prematurely, you will receive what is known as the surrender value of the plan. This is the plan’s cash value. If you had opted for a participating whole life plan, you will also receive the non-guaranteed bonuses as part of the cash value (if any bonuses are due).
We hope that the information in this article will prove helpful when you buy life insurancebuy life insurance.