Term Life vs Whole Life Insurance: Which to Choose?

2025-07-11

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Insurance policies help people meet financially challenging times with relief. The accumulated deposits are made available to the policyholder or their family as per their needs. But with the availability of a variety of them, the choice can be challenging. Among them, the terms and whole life insurance are common policies that confuse potential investors. Helping you understand the difference between term life insurance and whole life insurance, find here the in-depth insights for informed decision-making.

Key Takeaways

Term life insurance provides financial protection for a fixed period. It is cost-effective. It usually does not offer maturity or cash value benefits.
Opt for whole life insurance if you need a long-term financial tool that offers both protection and savings/investment benefits.
Whole life insurance offers lifelong coverage. It builds cash value and allows borrowing against the policy, but comes with higher premiums.
Choose term insurance if you want affordable coverage for a specific time, like until your children are independent or loans are repaid.

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Understanding Term Life Insurance and Whole Life Insurance

Term life insurance simply allows investment to help safeguard the family's finances in case of the insured’s death during the policy term. It helps maintain the finances of the family and current lifestyle, and meets the essential expenditures in the absence of the breadwinner of the family. The term life insurance is characterised by providing coverage for a predetermined period and does not accumulate cash value.

The whole life insurance provides the insured with coverage for their entire lifetime as long as premiums are paid. It includes the growth of the investment component over time and is comparatively expensive than term life insurance. Further, the cash value is accumulated and accessible in this type of life insurance.

Difference Between Term Life Insurance and Whole Life Insurance

Parameter	Term Life Insurance	Whole Life Insurance
Coverage duration	Provides financial protection for a specific period as decided during the policy	Offers financial coverage for the entire lifetime of the policyholder
Savings	Absence of savings component, but new policies include return of premiums	Involves accumulated savings and is accessible throughout life via different forms
Premiums	Comprises lower premiums due to being for a shorter span	Requires payment of higher premiums due to coverage for life and the presence of a cash component
Purpose	Acts as life insurance only	Acts as both an insurance and an investment product
Loan facility	No cash value indicates no loan facility available	Builds cash value, and hence, a loan facility is available here

Did You Know?

Many term policies are also “convertible,” as they can be converted into a permanent life insurance policy.

Investopedia

How to Choose Between Term Life Insurance and Whole Life Insurance?

Here are certain factors that can help you decide whether you should buy a term life insurance or whole life insurance:

Budget

The term life insurance plan is a cost-effective policy, owing to being a term plan. Hence, the better affordability makes it an optimal choice for individuals with limited funds. However, it comes at the cost of several aspects, such as lesser coverage and a lack of a cash value component.

Coverage Duration

As we just mentioned, the duration of coverage in each of the plans is also a deciding factor in making a choice. The term life insurance plan is well-suited if you want coverage till the time the loan is paid off or only during the child’s growth years. However, if the finances of the dependents are completely upon you, then whole life insurance coverage is a suitable option.

Long-Term Financial Goals

Term insurance can be an effective choice if you are looking for temporary investments, affordable insurance, or to claim tax benefits. Whole life insurance, on the other hand, is an ideal choice for long-term investments that build value.

Flexibility

Comparing the flexibility of customising the two options is also important before selecting any one life insurance plan. It includes the presence of features like the ability to add riders, increase the coverage over time, or convert term life insurance into whole life insurance before finalising the choice.

Term Insurance - Top Selling Plans

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Tips to Assist in Deciding Between Term Life Insurance and Whole Life Insurance

Term insurance policies do not accumulate any cash value, and the insurer uses the premiums paid to cover the cost of the insurance. Thus, throughout the duration of the policy term, there are no savings or investments made to build a fund. It focuses only on giving you life coverage at a low premium and does not offer any other financial features.

Reasons Term Insurance Plan Does Not Offer Cash Value

Besides focusing on the above-mentioned points, there are some more aspects to work on for informed decision-making:

Identify the existing monthly expenses, current lifestyle and age, number and type of dependents, retirement plans, existing debts, education expenses and other areas to understand the best fit insurance plan for you
Calculate the coverage amount that would be appropriate for you and your family
Evaluate both the plans to check their alignment with your long-term financial goals
Take the assistance of a financial expert to help you figure out the optimal option between term and whole life insurance, depending on your situation.

What to Do If You Already Have Term Life Insurance?

In case of the presence of term life insurance, there are two possible aspects for the future:

You can convert a term life insurance policy into a whole life insurance policy
You can buy a new policy depending on the one you currently have

Conclusion

Life insurance policies are of multiple types, including term and whole life insurance. The choice between the insurance plans can be simplified with informed decision-making. Understanding the main purpose of the term and whole life insurance plans, along with the coverage they provide, cash value accumulation, life situations they are optimal for, long-term financial goals, and the affordability aspect can assist in finding the best fit. Still wondering how and where to begin? Click the link now to get a glance at an iSelect Smart360 Term Plan by Canara HSBC Life Insurance or to interact with a financial expert for your guidance.

Glossary

Sum Assured: The guaranteed amount paid to the nominee in case of the policyholder’s demise.
Rider: An additional benefit that enhances a term insurance plan, like critical illness coverage.
Term Insurance: Term insurance is a type of life insurance that offers financial protection for a set period.
Mutual fund: A mutual fund is a pool of money that is invested in stocks, bonds, and other securities.
Financial Dependents: Family members who rely on the policyholder’s income for their financial well-being.

FAQs

The iSelect Smart360 Term Plan from Canara HSBC Life Insurance offers coverage up to age 99, with options to include features such as income benefit and child care benefit, subject to policy terms and conditions.

Certain term plans may provide an exit value feature, where a portion of premiums can be refunded if the policy is exited prematurely. Availability and conditions of this feature depend on the specific plan and its terms.

You can have the premiums back if you cancel the life insurance policy within the cooling-off period of 15 days.

Canara HSBC Life Insurance has a claim settlement ratio of 99.23 per cent for individual claims.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.