WHOLE LIFE VS TERM LIFE INSURANCE: WHICH ONE TO CHOOSE?

The loss of an income provider due to death or illness can significantly impact a family’s financial stability. Life insurance ensures that your dependents are financially secure even when you are no longer there to support them.

Choosing the right life insurance plan for you and your family can be overwhelming.

This article breaks down the differences between Whole Life and Term Life Insurance to help you make an informed decision.

WHOLE LIFE INSURANCE

A Whole Life Insurance plan is a permanent policy designed to provide coverage throughout your lifetime. It primarily serves as an income replacement for your dependents in the event of your passing.

Whole life insurance comes with higher premiums than term insurance but offers lifelong coverage and additional benefits.

How Whole Life Works

Whole Life Insurance guarantees a death benefit payout to beneficiaries in exchange for regular premium payments.

The main type of Whole Life Insurance available in Kenya is:

Pure Whole Life Insurance (Protection Only)

• A protection-only plan that provides a death benefit or critical illness coverage.
• Premiums remain fixed throughout the policy.
• The death benefit is guaranteed for the policyholder’s entire life.

Benefits of Whole Life Insurance

• Death Benefit- Guaranteed death benefit payment to beneficiaries upon the insured’s death.
• Lifetime Coverage- Covers the insured until death.
• Living Benefits: Optional additional critical illness rider helps offset medical bills upon first-time diagnosis with critical illness.
• Tax Benefits: Allows a tax relief of 15%, up to a maximum of Kshs—60,000 per year.

TERM LIFE INSURANCE

Term Life Insurance provides coverage for a specific period, such as 10, 20, or 30 years, and pays death benefits to the beneficiaries upon the policyholder’s death.

This plan is typically more affordable than Whole Life Insurance.

How Term Life Works

The policyholder selects a term length and pays fixed premiums for that duration. The premium amount is based on age, health, gender, and coverage amount. If the policyholder dies during the term, the beneficiaries receive a lump-sum payout.

Types of Term Life Insurance

1. Fixed Term- Lasts for 10, 20, or 30 years with static premiums.
2. Increasing Term- Death benefit increases over time, leading to slightly higher premiums.
3. Decreasing Term- Premiums reduce over time, resulting in a lower death benefit.
4. Annual Renewable Term- Provides coverage for a year at a time, requiring renewal at the end of each term, usually with increasing premiums.

Benefits of Term Life Insurance

• Affordability- More cost-effective than Whole Life Insurance.
• Flexibility- Options to increase coverage amount.
• Optional Riders: Optional additional benefits can be included.
• Tax Benefits: Similar tax advantages as Whole Life Insurance.

KEY DIFFERENCES BETWEEN WHOLE LIFE AND TERM LIFE INSURANCE

KEY CONSIDERATIONS WHEN CHOOSING BETWEEN WHOLE LIFE AND TERM LIFE

Coverage Needs- If you need coverage for a few years, then term life suits you. Consider whole life insurance if you want lifetime coverage.

Dependents- Whole life Insurance would be the best choice for people with lifelong dependents like children or partners with disabilities.

Cost- Consider the costs when deciding which policy is right for you. If you’re on a budget and want to provide coverage for your family, term life is the most cost-effective option. If you’re looking for life-long protection, whole life insurance may suit you.

CONCLUSION

Whole Life Insurance is ideal for those seeking lifetime coverage, while Term Life Insurance is a cost-effective option for those needing coverage for a specific period. Evaluating your circumstances and financial objectives will help you make the best choice for you and your loved ones.