Term Life & Keyman

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Let’s see what is the difference between Term Life and Whole Life Policy-

Term life insurance is purely an insurance policy, for a set duration of time. The only purpose of the policy is to secure an individual against loss of life and on the expiry of the term, there are no maturity benefits. Once the term is over it is up to the policy owner to renew the policy for continued coverage.

Whole life insurance- is the most basic type of cash-value policy, for lifelong coverage. It also includes an investment component known as the policy’s cash value. Along with a predetermined sum assured amount for loss of life, it also provides cash value on maturity. The insured individual can either borrow money against the account or surrender the policy for the money.

Read More: What is covered in a Term Insurance Policy?


A Case of Selecting Term and Whole Life Policy

Mr. Mohanlal, aged 35 years, runs a manufacturing business. His spouse, Parvati, is a homemaker who takes care of their 2 kids diligently. His parents too are living with him. Though Mr. Mohanlal had taken a term cover of Rs. 50 Lakh at 30 years of age when he got married to Parvati.

With the addition of 2 kids to the family, he has been thinking of increasing the term cover to at least Rs. 1 Crore, to include the financial goals of the children.

He also plans to add a whole life plan of Rs. 15,00,000 to his portfolio, for which he cites the following two reasons:

  1. This will be available throughout his life, even after he retires from the business and his children take over.
  2. This will provide his kids with enough financial backup to pick up the chords of business if anything happens to him before they fully prepare to take it on.

While the term insurance policy will cover him until his retirement age, the permanent life cover provides extra protection after retirement. In the case of the sudden demise of Mohanlal, his family will have instant funds available to help liquidate business debts, mortgages, or loans. The best advantage of the whole life plan is that Mohan does not worry about the rising cost of sustaining the business as the maturity value will keep on increasing as time passes.

Also, purchasing the plan now gives him the advantage of lower premiums, which will be high if he postpones it near his retirement age.