When it comes to choosing between term insurance and whole life insurance, this can be tricky. Term insurance is like renting coverage for a fixed period. During this period, you pay either a lump sum or periodically to get a coverage to give your loved ones a financial security in case of your death. While whole life insurance not only provides lifelong coverage but also has a savings component that builds cash value over time.

When considering life insurance, the two most commonly discussed options are Term Insurance and Whole Life Insurance, says Aayush Dubey, Co-Founder and Head of Research, Beshak.org. “Both serve the fundamental purpose of protecting your family financially in case of your death, but they differ significantly in their structure, benefits and cost,” he adds.

Understanding the basic differences between term insurance and whole life insurance:

Term insurance is a straightforward life insurance policy that provides coverage for a specific period, or ‘term’; if the insured person passes away during this period, the policy’s beneficiaries receive a death benefit. However, if the person survives the term, the policy expires, and there is no payout, Dubey explains.

This pure protection policy is ideal for people wanting to protect their loved ones during the years when they are most financially dependent on you. The primary appeal of term insurance is its affordability. Since it’s purely a protection-oriented product without an investment or savings component, the premiums are much lower compared to other forms of life insurance.

“Whole life insurance is like term insurance, but with a guaranteed payout. The insured person is covered for their entire lifetime – up to the age of 99 or 100 years. Whether they pass away or live to 100, the policy will pay out, either as a death benefit to their family or as a maturity benefit to them. Some whole life plans also offer survival benefits – periodic payouts during the policy term,” says Dubey.

“This kind of policy is often chosen by those who want to leave behind a legacy for their children or loved ones. However here, the premiums are significantly higher compared to term insurance because it guarantees a payout either at death or upon maturity,” according to him.

How to decide which is right for you?

When deciding between term and whole life insurance, it’s important to consider your financial goals, suggests Dubey. “In my opinion, it’s often better to keep insurance and investments/savings separate. Term insurance offers substantial coverage at a lower cost, and the money you save on premiums can be invested in high-return financial products like mutual funds, etc. This strategy often yields better financial growth compared to the cash value offered by whole life insurance.”

Now, you might ask, “But what if I want coverage for my entire life?” While whole life insurance seems like the obvious choice, you can achieve the same with term insurance policies that offer whole-life coverage. Basically, some term insurance plans allow you to extend protection up to 99 or 100 years of age. This way, you can enjoy lifelong protection without paying the higher premiums associated with whole life policies, he further adds.