Term life insurance is a type of insurance policy where the protection is available only for a fixed amount of time that
you choose right at the start. The benefits of the policy are available only in case of death of the policy holder during the term period of the policy.
This term could range from as less as 5 years to as high as 50 years. However, once the 50 year term period is complete, the beneficiary doesnít receive
any payout even if the policy holder dies just a day after the completion of the term.
Whole life insurance is a type of policy that offers coverage for your entire life.
This is an indefinite policy where an individual needs to pay premiums every month for an indefinite time, unlike in case of term life insurance.
Term life insurance could be level term life insurance where the premiums are constant across the entire span of the policy.
Another type of term life insurance is decreasing term life insurance where the amount of protection coverage available to the individual reduces year after
year, along with the liability of the policy holder against which protection has been taken, e.g. a house mortgage. Term life insurance could also be renewable
where the policy holder can choose to continue with the same policy, automatically renewing it annually or renewing it once every 5 years. The premium rate,
though, would increase to adjust for the increased mortality risk.
Whole life insurance is considered as permanent protection where the beneficiaries will receive guaranteed benefits at the time
of the policy holderís death unlike in case of term life insurance. Also a part of the premium paid for whole life insurance is used as savings or investment too,
that is offered to the policy holder at a later stage.
The individual has to decide the duration of the term, which could be 1, 5, 10 or even 50 years. It also involves the hassle of
renewing the policy from time to time.
The whole life insurance lasts for the entire lifetime of the policy holder.
Term life insurance offers benefits or payout only if the policy holder dies during the term period of the insurance.
In case of whole life insurance, cash payout is guaranteed to the beneficiaries at the death of the policy holder, whenever
that may happen. As a result there is a chance that a term life policy expires without the beneficiary receiving anything.
Term life insurance is usually protection against untimely death if the individual has financial obligations, most prominent
being a mortgage or college education for children.
The whole life insurance has an investment component to it, where part of the cash paid as premium goes as savings for which
individuals receive dividends at a later stage. However, it has to be noticed that whole life insurance policy cannot be considered an efficient investment
instrument. It just offers an added benefit of savings, where in due time, the accumulated interests can completely take care of the individualís premium payments.
Term life insurance tends to be cheaper in the absence of an investment component.
The premium for whole life insurance is much higher than the premium in case of term life insurance for the same protection coverage
against untimely demise of the policy holder. As a result of the investment component, whole life insurance policies tend to be more expensive.
On the other hand the term life insurance is more affordable and can be used as a stop gap solution while the individual gets rid of
his or her financial obligations or debt.
A whole life insurance is a more permanent protection and at the same time requires greater financial stability on the individualís part.
The term life insurance usually pays out only in case of the demise of the policy holder. It cannot be counted upon as an investment
under any circumstances.
The whole life insurance can be considered as an investment and can be used as collateral for loans in some cases too.