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Life is unpredictable, and that is the only constant we can be certain of. But even in this uncertainty, finding small ways to ensure steady earnings for our retirement years or helping our loved ones navigate through the grief in peace without a financial burden is possible. That is what whole life insurance is all about.
Whole life insurance, as the name suggests, is a life insurance policy that covers the entire duration of your existence. So, whether you live a short life or a very, very long one, your beneficiaries, i.e., your loved ones will receive a substantial amount of money after your passing. While their grief may not pass as easily, it would certainly help them handle their finances with ease while they plan the rest of their lives without you.
How Does Whole Life Insurance Benefit the Insured?
A whole life insurance policy provides financial protection for loved ones after the insurer’s demise. It is also a means of earning more money during the insurer’s lifetime.
When one acquires a whole life insurance plan, the premium may be set when planning the policy. Part of this premium is used to invest in markets so the insured individual’s money keeps making more money. If decided beforehand, the insured can earn dividends from the investment. It is the insurance provider who invests the money and tracks the projection of the market.
If the insured has a major life event or faces a medical issue during the plan’s tenure, they can also withdraw an amount.
Let’s understand this with a simple example
Sahil acquires a whole life insurance plan for 2 crores. Then he gets married, and his wife becomes the life insurance beneficiary (by choice, not by rule.) After a few years, if Sahil sadly passes away, his wife will receive the 2 crores claim, provided that Sahil has continued to pay the premium on a timely basis and the policy was in-force.
Thus, a whole life plan works as a family protection plan and sometimes as a legacy planning tool.
Difference between term insurance vs whole life insurance
Term Insurance is a policy plan that can be acquired by the insurer for a specified tenure. That is to say, a term insurance plan can range from 10 years to the age of 99-100 based on the tenure that the insurer chooses. When it is a plan to insure a person who lives till 100, it becomes a whole life insurance. However, when it is an insurance for a shorter period, it remains a term life insurance.
Some common differences between term insurance vs whole life insurance are as follows:
| Term Life Insurance | Whole Life Insurance | |
| Death Benefit | The death benefit is paid to the nominee if the life assured dies within the policy tenure. | The death benefit is paid to the nominee whenever the life assured dies within the policy tenure of 99 years. |
| Premium | The premiums are usually lower as it is a pure protection plan. However, the premium payable is different based on the type of term plan chosen, i.e. level term, increasing or decreasing term plan or TROP (term plan with return of premium). | The premiums are usually higher than term plans for a longer benefit period. |
| Maturity Benefit | There is no maturity benefit in a pure term plan except in the case of a TROP (Term plan with return of premium) where only the premium paid during the entire policy tenure is returned at maturity. | If the insured outlives the Whole Life Insurance policy, they can use the money in their old age in retirement or for legacy planning. |
| Premium payment tenure | In a regular-pay plan, the insured must continue to pay the premiums every year to receive the full benefits of the plan. However, if you choose a single-pay plan, you can pay a lumpsum premium. | Most whole-life plans have a limited tenure of premium payment as the entire policy tenure is too big for anyone to continue paying a premium. |
| Loan | There is no loan available in a term plan as there is no surrender value. | Depending on the type of whole-life plan, there could be loans available. |
Based on this, we can determine that a whole life insurance can be called a term life insurance but a term life insurance is not a whole life insurance.
Conclusion
When considering the type of life insurance to get, one must consider their financial planning. If the insured is looking for more benefits during their lifetime and after, then whole life insurance serves the purpose better.
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