The decision to buy life insurance is critical as it affects the overall financial planning and ensures monetary safety during your untimely death. Life insurance comes in different forms – term insurance and whole life insurance are noteworthy. This blog offers an extensive guide encompassing all the areas of term and whole life insurance, offering better scope to make informed decisions.

Understanding Life Insurance Policy

Life insurance is a monetary contract between the policy holder and the insurer who has promised to pay a specified amount upon the untimely death of the policyholder. This death benefit is paid to the designated beneficiaries as per the amount specified in the plan.
In exchange for this, the policyholder timely pays a premium as promised in the contract.
If needed and as mentioned, life insurance can also cover everyday expenses, debts, and education costs, enabling peace of mind for all the parties involved.

What is Term Life Insurance?

As the name suggests, term life insurance offers coverage for a specific period of time, say, 10, 15, or 20 years. The insurance company only pays the death benefit if the policyholder dies within the term mentioned. If the untimely demise occurs after the expiry of the term, there will be no payout.

Highlighted Features of a Term Life Insurance

Some of the top features of a term life insurance policy are as follows:

• Affordability & Simplicity
  In terms of affordability, term life insurance wins the top spot over whole life insurance. This is generally ideal for younger and healthier individuals.

• Temporary Coverage
  Term life insurance policy is ideal for those individuals who are applying for a certain period of time for example; till the mortgage is paid off, etc.
• Renewable & Convertible
  You can find some term life insurance that offers the scope for renewal and is convertible to a permanent policy without the hassle of a medical exam.

What is Whole Life Insurance?

Whole life insurance offers permanency and ensures lifetime coverage of the policyholder as long as the premium is paid. It includes a savings component called “cash value,” which grows over time and can be accessed by the policyholder during their lifetime.

Highlighted Features of a Whole Life Insurance

Here are some of the top features of whole life insurance that differentiate it from the term life insurance:

• Lifelong Coverage
  This type of policy comes with no expiration date as long as premiums are timely paid by the policyholder.

• Cash Value Accumulation
  The amount of premium you pay for such a policy adds into a savings account which grows as tax deferred.
• Fixed Premiums & Dividends
  Generally, the premium of this policy remains constant over the life of the policy. Moreover, as an added bonus, some whole-life plans pay dividends that offer cost-effective approaches. One can buy additional coverage with this money or withdraw it as cash.

An Overview of Difference Between Terms vs. Whole Life Insurance

Know Which One Is Right For You

Choosing between term and whole life insurance depends on your financial goals, budget, and personal circumstances. However, for your better understanding, Arrowhead offers guidance and suggests choosing:

Term Insurance if:

1. You are looking for an affordable option
2. Your financial responsibility is temporary like mortgage, loans, etc.
3. You want simple and straightforward protection

Whole Life Insurance if:

1. You are looking for lifelong coverage
2. You are interested in cash value accumulation
3. Your priority lies in looking for an additional way to invest or save money from premiums

Final Takeaway

As life insurance is an integral part of the financial strategy, choosing term or whole life insurance based on your needs or goals is pivotal. Term life insurance offers affordable and straightforward protection, making it ideal for many people. Whereas, whole life insurance offers lifelong coverage and a cash value component, and can serve as a financial asset for those who can afford the higher premiums.

If you are still skeptical about choosing the right life insurance policy, Arrowhead, an IRDAI-licensed insurance broker offers end-to-end support. By choosing our expert guidance, you are bound to boost your financial planning and amplify the level of monetary safety in no time.