Whole life insurance provides coverage for the entire lifetime of the life insured, with a premium that typically remains level over the duration of the contract. A whole life policy builds up a cash surrender value (CSV) over time, and if the policyholder surrenders the policy prior to the death of the life insured, he may be entitled to receive payment of that CSV, less any surrender charges, if applicable. Whole life insurance is a contract with premiums that includes insurance and investment components. The insurance component pays a predetermined amount when the insured individual dies. The investment component builds accumulated cash value the insured individual can borrow against or withdraw. This is the most basic type of cash-value life insurance.
Whole life insurance provides policyholders with the ability to accumulate wealth as regular premium payments cover insurance costs. These payments also contribute to equity growth in a savings account. Dividends, or interest, can build up in this account, tax-deferred. As indicated by its name, whole life insurance protects an individual for his entire life. This is the most basic type of whole life insurance, also known as straight life, traditional or permanent whole life insurance. Whole life insurance is indicated for individuals who need to provide dependent family members with funding after the head of a household dies; to liquidate business debts, mortgages or provide family members with funds to pay down debts; to fund requests from charities; and to ensure cash is instantly or quickly available to surviving family members.
A fixed and known annual premium. Although, it should be noted that net premiums (fixed premiums minus dividends) for par policies generally will decline over the years. Cash value interest or earnings accumulate tax-free or tax deferred, depending on whether gains are distributed at death or during lifetime. The death benefit proceeds are often fully or partially exempt from state inheritance taxes unless payable to the insured's estate. Policy owners can use life insurance policies as collateral or security for personal loans. Guaranteed ceiling on mortality and expense charges and guaranteed floor on interest credited to cash values.
In the early years, the amount of protection is lower relative to the premium spent than with term insurance. However, later, as term premiums rise while the premiums for ordinary life remain level, the reverse typically will be true. Policy owners generally may not deduct interest paid on policy loans on their tax returns. The premium may be unaffordable for persons of limited financial resources as premiums being stable for life are higher for first few years compared to other life insurances. Surrender of the policy within the first five to 10 years may result in considerable loss because surrender values reflect the insurance company's recovery of sales commissions and initial policy expenses. The overall rate of return on the cash values inside traditional whole life contracts has not always been competitive in a before-tax comparison with alternative investments. However, when safety of principal, contractually guaranteed liquidity, and the cost of term insurance if purchased outside the policy are factored into the analysis, whole life often compares favourably to alternative types of policies as well as nonlife insurance investments on an after-tax basis.
Term life insurance provides coverage for specific term which can't be availed after specific age (e.g. 75 or 85) while Whole life insurance is coverage for life regardless of age.
For Term Life Insurance premiums generally increase with increase in age and premiums are lower if insurance is taken at younger age. While for Whole Life Insurance premiums remain constant regardless of age and premiums are higher than premiums for term insurance if taken at younger age.
Depending on the contract, the Term life Insurance policy may be non-renewable, or the life insured may have to provide medical evidence of insurability for renewal. However, some term policies are convertible, which allows the policyholder to convert the policy to whole life insurance without providing new medical evidence of insurability. With Whole Life Insurance no renewals are necessary.
4.Cash Surrender Value
Term Life Insurance Policy does not build up a cash value, so policy has no value upon expiry or termination. Whole life Insurance policy never expires, and it builds up a cash surrender value (CSV) over time; policyholder can receive Cash Surrender Value if he terminates or surrenders the policy.
Participating Whole life policy may provide dividends although same is not guaranteed also policy holder may be able to take out policy loan against the cash surrender value. No such option of investment return or loan is available with Term Life policy.