You must have seen advertisements from life insurers saying, “What about an insurance plan that covers you till you are 100 years old?”

Sounds great, right?

A life insurance product (whole life insurance) that will safeguard your finances until you turn 100! A policy whose sum assured will be disbursed to your nominee if you pass away within the policy period to fund their various life stage goals. And let’s be honest: since the average life expectancy in India is between 70 and 80 years old, such policies are a sureshot payout channel.

However, despite such a lucrative perk, we still don’t recommend this type of life insurance policy. The question is, “why?” To get a better understanding of this, you need to pit whole life insurance policies against term insurance plans (a popular life insurance product), differentiate between the two, and analyse why term insurance plans are recommended more than whole life plans.

Let’s start!

Term Life Insurance Plans vs Whole Life Insurance Plans

Features Term Life Insurance Plans Whole Life Insurance Plans
Flexibility ✔ (Riders) ✔ (Dividend)
Death Benefit ✔ ✔
Investment Option ✖ ✖
Cash Value ✖ ✔
Premiums Pocket-friendly Expensive
Heads Up: It takes an average person up to 5 hours to read & analyze a term life policy and 10 hours or more to compare different plans and make a decision.
This is why we propose a better alternative - taking a 30-minute FREE consultation with Ditto’s certified advisors. We have a spam-free guarantee, and we’ll never push you to buy a plan. Don’t delay this - we have limited slots every day, so book a quick call here before they run out.

Understanding Term Life Insurance and Whole Life Insurance Plans

  1. What is a Term Life Insurance Policy?

Term insurance plans are a type of life insurance policy wherein the insurer offers the beneficiary a substantial amount to the nominee if the policyholder passes away during the plan's tenure. Such policies require you to calculate two things - the ideal policy tenure and the ideal policy cover amount.

Remember, term insurance policies are not a “one-size-fits-all” financial product. Term insurance plans are crafted to act as your financial replacement in the event of your unfortunate demise. The amount so obtained is designed to help your family achieve their future goals of marriage, childbirth, higher education, real estate purchase, etc., without any financial restraints. Hence, when choosing the ideal tenure and cover amount of your term insurance policy, you need to consider your

  • current income slab,
  • years left till retirement,
  • number of dependents,
  • age of the dependents,
  • current financial liabilities,
  • existing financial bandwidth and
  • inflation.

Once you have finalised the policy tenure and cover amount, you gain access to a substantial cover amount against a nominal premium. Such loans can also be customised via term insurance riders like -

2. What is a Whole Life Insurance Plan?

Whole Life Insurance Plans are a type of life insurance policy. In terms of the policy duration, they are actually umbrella insurance plans that offer coverage till you are 99/100 years old. With Whole Life Insurance policies, there is a guaranteed option of payout since the average life expectancy of the Indian population lies between 70 and 80 years, and the plan offers coverage till you turn 99/100 years. This USP of the plan has been the main focus for potential policyholders who end up purchasing the plan.

Whole life insurance plans have a few highlighted features -

  1. Death benefit - Like term insurance plans, under whole life insurance policies, if a policyholder passes away during the policy tenure, the beneficiary receives a pre-decided death benefit.
  2. Cash value - Whole life insurance plans come with a savings component that grows across the policy tenure on a tax-deferred basis. This savings component is also called the cash value of a whole life plan.
  3. Lifetime coverage & Guaranteed benefits - Whole life insurance offers coverage until you turn 99 or 100. Since this exceeds the average life expectancy of an individual in India in 2024, you are naturally looking at assured payouts via death benefits.
  4. Dividends - Whole life insurance policies may come with dividend perks. Dividends allow you to increase your policy's cash value, reduce the premiums to be paid, or buy additional coverage.

So, now you know the basics of term insurance plans and whole life insurance policies. They seem similar in many ways; however, that’s not the truth. To get an understanding of the similarities and differences between whole life and term insurance plans, let’s start by talking about the pros and cons of each of these -

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What are the Pros of Term Insurance Policies vs Pros of Whole Life Insurance Plans?

Pros of Term Insurance Policies Pros of Whole Life Insurance Plans
  • Affordable Premiums: Term insurance plans require very nominal premiums compared to the extensive coverage they offer (often in crores).
  • Tax benefits: The premiums to be paid towards a term insurance plan fetch tax benefits under Sections 80C and 10(10D) of the Income Tax Act, up to ₹1.5 lakhs.
  • Financial security: Since the plan kicks in, in the event of the death of a policyholder, the family’s financial future is well shielded.
  • Flexibility: Term insurance plans have multiple value-worthy riders that ensure policy flexibility and customisation. These riders ensure that the policy is tweaked to fit your tailored financial requirements and goals.
  • Zero risks: Since term insurance plans are not market-linked, there are no risks associated with the policies. The sum assured to be disbursed is independent of the effect of any market fluctuations.
    		•
  • Cash value: Whole life insurance plans comprise a savings component called cash value.
  • Tax benefits: The premiums paid for a whole life insurance policy fetch tax benefits, and the growth in cash value is tax-deferred.
  • Financial security: Both the death benefit and the cash value component of a whole life insurance plan build up towards ensuring financial security for the policyholder and their family.
  • Flexibility: With some whole life insurance plans, policyholders have access to dividends. These dividends offer flexibility to the policies by providing options to reduce premiums, add coverage, or increase the plan's cash value.
  • Extensive tenure: In the case of whole life insurance, you don’t have to compute the ideal policy tenure because the plans offer coverage until you turn 99 or 100.
    		•

    What are the Cons of Term Insurance Policies vs Cons of Whole Life Insurance Plans?

    Cons of Term Insurance Policies Cons of Whole Life Insurance Plans
  • Stringent eligibility criteria: Considering that the best term insurance providers offer access to extensive coverage against pocket-friendly premiums, insurers have a strict eligibility benchmark spread across the fields of income slab, age, occupation, hobbies, education, and pre-existing medical conditions.
  • No investment component: Term insurance plans are a purely financial safety product that offers funding to the nominee upon the policyholder's death. There are no investment components involved in such policies. However, this can't really be considered a disadvantage since it's always best to keep your savings and investment channels separate.
    		•
  • Pricey premiums: Since whole life insurance plans often assured death benefit payouts, the premiums are pretty expensive considering their extensive policy tenure.
  • Complexity across policies: Whole life insurance can be comparatively cumbersome to understand. Unlike term insurance, which has a pure death benefit perk, whole life insurance plans require the analysis of the cash value component, its growth, and the dividend factor. This might seem a tad bit complex for potential policyholders.
  • It might turn out to be a financial burden: Pricey premiums plus extensive tenure doesn’t add up to be a smart financial move, especially considering that it will be eating away at your savings long afterYour dependents become financially independent,
  • You cross your retirement years
  • There is a substantial increase in the inflation rate
    		•

    Term Insurance vs Whole Life Insurance Plans: Which is a Better Choice?

    While the comparison, as mentioned above, of the pros and cons of term insurance plans and whole life insurance policies gives you a clear picture of which is a better option, let’s make it even more precise -

    While whole life insurance plans have recently become a popular financial product, it’s mainly because the policy offers coverage till you are 99/100 years old. This is why insurers charge you much higher premiums since there is almost a guarantee on the death benefit payout. However, the question is, do you need this kind of coverage? Here’s what we think!

    NO!

    The sum assured is supposed to be your financial replacement & cater to your dependents' requirements. Subsequently, both factors cease to matter after you turn 65 or 70. By then, you have reached your retirement years, and your dependents are already financially stable. If you are wondering about the financial security of your spouse, you have better options - say, a savings account/RD/FD that fetches a handsome interest, too. Additionally, you don’t need the redundant responsibility of paying timely premiums, which may lead to the lapse of the policy and you losing out on the entire corpus.

    Hence, we always recommend that you opt for a term insurance plan with coverage till you reach 65 or 70 years.

    What are the Best Term Insurance Plans in India?

    BEST-TERM INSURANCE PLANS FEATURES DRAWBACKS
    Max Life Smart Secure Plus
  • Critical Illness Benefit (40 ailments)
  • Terminal Illness
  • Return of Premium
  • Accident Cover
  • Waiver of Premium Plus Rider
    		•  None that we could find
    HDFC Click2Protect Super
  • Critical Illness Benefit (60 or 19 ailments)
  • Zero Cost Option
  • Accidental Death Benefit
  • Waiver of Premium
  • Total Permanent Disability Benefit
    		•  Expensive plan
    ICICI Prudential iProtect Smart
  • Critical Illness Rider (34 ailments)
  • Life stage Benefit (In-Built)
  • Accidental Death Benefit
  • Terminal Illness
  • Waiver of Premium
  • Smart Exit Benefit
    		•  Lengthy and complicated application process
    TATA AIA Sampoorna Raksha Supreme
  • Critical Care Plus Benefit (40 ailments)
  • Whole Life Cover
  • Top-Up Sum Assured (by 5% every year)
  • Terminal Illness Benefit (up to 50% of the base cover)
  • Lower Premium for Women
  • Wellness Program
    Return of Premium
    		•  None that we could find
    Bajaj Allianz Smart Protect Goal
  • Critical Illness Benefit (55 ailments)
  • Return of Premiums
  • Whole Life Cover
    		•  There is no Premium waiver, Inflation Shield, Accidental Death Benefit, Terminal Illness Benefit, or the option to boost the cover amount.

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    Conclusion

    Now that you know which is the better choice between term insurance and whole life insurance, you can make a smart financial move that will save your family's financial future without being redundantly burdensome.