Whole life term insurance also referred as permanent insurance extends financial coverage for the entire lifetime of a policyholder whereas term insurance as the name suggests provides financial protection i.e limited up to the policy term. In a usual case, the policy term in a term plan ranges to a maximum of 85 years. This said, only in an event when the policyholder meets untimely death during the policy term, nominee is eligible to get the payout as death benefit which is equivalent to the sum assured value. So, in a case, when the policyholder outlives the policy term, there is no payout.
Say Mr. X buys a term plan at the age of 35 yrs for a period of 30 years then he will be provided financial coverage until 65 years of age and if he dies at the age of say 67 years, there will be no death benefit extended to his dependents. But if the same happens in case of a whole life term insurance plan, Mr X's dependents will be given death benefit equivalent to sum assured value.
Cash value feature in Whole LifeTerm Policy
Whole life insurance policy has a cash value feature that acts as a tool for investment. The cash value is the amount you have paid to the insurance company and this amount can be kept with the policyholder as and when he stops paying the premium. Other than building the cash value, whole life policy also assures growth of the cash value. Hence, unlike the term plan, when the policyholder cancels the whole-life policy, he is paid back the cash value.
In a whole life policy, policyholders are also allowed to withdraw money that has accumulated over the years as premium amount after some years into the policy. Nonetheless, this amount has to be deposited back as else the death benefit will be reduced substantially. So, whole life or permanent insurance policy in a nut shell offers both life-long protection as well as financial backing.
Salient features of whole life policy
- Policyholders can choose policy for a longer tenure of 99 years or 100 plus years
- Offers flexibility to withdraw funds for various financial needs
- Helps in aggregating a cash value or corpus for future financial requirements
- Provides both maturity benefit as well as death benefit
- Premium for such a policy is way too expensive in comparison to plain vanilla term plan
It is suggested that the difference between premium of whole-life term insurance and regular term plan is huge. And investment savvy individuals can rather go for plain vanilla term plan as the difference if invested on our own can result in generation of far better returns. Other investors can however opt for whole life plan with enhanced life-long protection.