For individuals who are in the process of buying life insurance, the search would eventually lead to two choices; Term Life Insurance and Whole Life Insurance. In this article I would like to try to make the choice easier for you.
Nevertheless, I have summarised the key differences of both policies side-by-side to make it easier for you to make a decision.
Term Life Insurance
Whole Life Insurance
|Typical uses||Mortgage Protection, Loan protection, Keyman insurance, Partnership insurance||Family Income Protection, Business Continuity Planning, Working Capital Protection, Key man insurance, Partnership insurance, Asset Protection|
|Typical Benefits||Life Cover, Critical Illness Cover, Total Permanent Disability, Waiver of Premium||Life Cover, Critical Illness Cover, Total Permanent Disability, Waiver of Premium, Accidental Death Cover, Hospitalisation Cover, Long-term Care Cover, Family Income Benefit, Additional Term life cover, Additional Term Critical Illness cover, Aeroplane Cover|
|Term (no. of years)||Decided by Client (maximum till the age of 79)||Till the age of 80 or 95 (client’s choice)|
|Cost Comparison for similar benefits||1x||3x(Typically costs 3-4 times of equivalent term life cover, depending on age and level of cover as well.)|
|Payment Term||You pay for all the years you are covered for, right up to the last month.||You can choose a short payment term, typically between 7 – 50 years, while cover continues till age 95.|
|Payment Frequencies||Monthly or Annual||Lump sum or Monthly or Quarterly or Bi-Annual or Annual|
|Premium payment grace periods||30 to 90 depending on providers||90 days|
|Premium contribution holidays||Not possible (Policy lapses after crossing grace period)||A cumulative period of 24 months can be availed with written notice. (after being 2 years in the policy)|
|Premium Flexibility||No flexibility once policy is issued||Premiums can be increase or decreased by adjusting benefits after being 2 years in the policy.|
|Cash back on maturity||No cash value if applicant survives the specified term||Cash value is typically greater than premiums paid after payment term is completed (also depends on fund performance)|
For those who are on a tight budget and would still like the protection and security provided by having a life insurance policy, term life insurance should work for you. Term life insurance is widely popular since it is affordable and fits the average person’s financial needs. The downside to term life insurance is – it only offers protection over the chosen term, not for the whole of life.
For those looking for an investment option aside from financial security provided by having a life insurance policy, then whole life insurance is for you. Whole life insurance is rather more expensive than term life insurance. This is because a portion of your premium is added to your policy investment fund.
In general both term life insurance and whole life insurance plans offer similar protection benefits but the key benefits of a term life insurance policy are detailed below:
In contrast whole life insurance policies offer slightly better benefits such as –
The important thing to note is that your numbers could vary based on various factors such as age, level of cover, insurability, state of health etc…, so please contact me by clicking the button below to find out what works best for you.
Amit is an Independent Financial Advisor, based in Dubai since 1997. He is part of the prestigious ‘Million Dollar Round Table’ (MDRT), which is an elite club of the best financial advisors worldwide.
He has authored the ‘6-Step Financial Success Guide’, and the book ‘Creating, Preserving, Distributing Wealth’.
He helps business owners and professionals ‘Create A Second Income’ through investments.
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Term Life Insurance or Whole Life Insurance
Term Life Insurance
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