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Difference Between Whole Life & Term Life Insurance

Thursday, August 04, 2022

According to a recent FSCA study[1], it is estimated that only one in 10 adults South Africans has life insurance. This means that 90% of adult South Africans do not have life insurance. When such individuals pass away, their loved ones could be left financially destitute. 

If you’re one such person who isn’t insured or who is underinsured, the Dialdirect team has assembled the life cover information you need to know in order to make a sound decision about Life Insurance. The question that is probably uppermost in your mind is: What are the benefits of Life Insurance? Followed by: What is the best option for my personal needs? 

In this article, you’ll discover what life cover is, the different types, and the pros and cons of the two most important kinds of life policies.


 Different types of life insurance


Life is unpredictable. Who would have thought that the year 2020 would be one of the worst in recent times? No one imagined that a pandemic like COVID-19 could surface and bring the world economy to a screeching halt.

The worst part is that thousands of South Africans lost their lives. No wonder the life insurance industry paid out R92 billion[2] between 1 April 2020 and 30 September 2021 to cover policies such as credit insurance and death claims. It’s in times like these that having a life cover policy can prevent financial disaster for your family. 

Life insurance comes in various forms, including:

  • Whole life insurance: A type of life policy that covers the insured person for the duration of their life. The insurer breaks up the premium into two parts: an investment portion and an insurance portion. When the insured person dies, beneficiaries receive a death benefit to be used for expenses such as funeral preparations, debt payments or other bills.

  • Universal life insurance: A permanent life insurance, also called adjustable life insurance, because it offers the insured person flexibility. For example, you can increase or decrease your death benefit when your circumstances indicate doing so. Like whole life insurance, it consists of a savings portion and an insurance portion.

  • Group life insurance: An insurance offered by employers as part of your employment benefits. The insurer calculates your premium based on the group as a whole, not on you as an individual. Typically, employers provide a basic cover for free, but you can add more coverage from your own pocket if needed.

  • Term life insurance: An insurance that covers you for a fixed period such as 10 or 30 years. During that period, your premium remains the same. When the cover lapses, you can renew it at a higher premium for the same death benefit.

  • Credit life insurance: An insurance that pays out your lender the balance on a loan in the event of your death. For instance, home loan lenders often sell a credit life policy to cover the balance if you die before settling the loan. 

A few more types of life cover are available, but the two most important ones are term and whole life policies.


What’s better – whole life insurance or term life insurance?


If there’s anything common between whole and term life insurance, it’s that both pay out a lump sum in the event of the insured person’s death. Whether you opt for whole or term life cover depends on your needs and wants. For instance, term life cover could be ideal if you want financial protection only until all of your children become independent.

Since people’s wants and needs vary, it’s not about whether either type of life insurance is better or not; it’s about matching your requirements with the right type of life cover.


Benefits of whole life insurance


Whole life insurance offers numerous benefits you don’t necessarily find in other similar insurances. The most important advantages of this type of insurance include:

  • Unchanging premiums: Most whole life cover policies offer the same premium throughout the life of the policy. As a result of this predictability and consistency, it’s easy to budget.


  • Tax-free death benefit: At death, your beneficiaries receive tax-free benefits, meaning that they can do more with it. For example, if the death benefit is R5 million, your loved ones will get the whole amount.

  • Offers lifelong protection: As long as you pay the premium, whole life cover will cover you for your entire life. Whether you live for two years or 30 years after taking out the policy, you’ll be fully covered. This means that you don’t have to worry about your cover term ending – a situation that could be financially risky for your beneficiaries.

  • A savings or investment portion: Certain whole life cover policies offer not only the death benefit but also a savings and investment option. This means that your overall benefit could grow throughout the life of your policy as you earn dividends.

  • No worries about renewing your policy: Since whole life insurance covers you for life, you don’t have to worry about renewing it. It feels great to have peace of mind knowing that your loved ones will be financially cared for if you pass away. 

As much as whole life cover has advantages, it also has certain terms you should be aware of, like: 

  • It costs more than other similar types of insurance: Whole life cover can be pricey because it doesn’t expire. However, as a result, you can expect to pay a higher premium than universal or term life insurance.

  • It can take a long time to build the cash value: The investment portion of the whole life cover can take a long time to grow to a substantial amount. This can make the added benefit of the investment portion insignificant in the short term.


Benefits of term life insurance


Your life’s needs and wants may warrant passing over whole life cover in favour of a term life policy. For example, if you and your spouse have a home loan, you may want to have term life cover until you’ve paid off your bond. Not only does term life insurance cover you for a fixed period, but offers other advantages, including:

  • A low-cost option: It’s not unusual for term life cover to expire before the insured person dies. As a result, insurers face less risk, which makes term life cover premiums inexpensive relative to whole life insurance.

  • Death benefit is tax-free: If you die before the term lapses, your beneficiaries will receive a tax-free lump sum. This means that your loved ones will receive a full death benefit, allowing them to cover a lot more expenses.

  • Simple to understand: Buying insurance can be complicated, considering that it could include investment and death benefit parts. Fortunately, term life cover is simple to understand because the cover is for death only – dependent on premiums being up-to-date.

  • It’s flexible: Some people would rather have life insurance for a limited period such as five or 10 years. Term life cover provides this flexibility, which could result in lower premiums.

Although term life cover is inexpensive and simple to understand, it comes with certain terms you should take note of. For example:

  • It offers temporary coverage: Term life cover works well for someone who wants temporary coverage. However, it’s not suitable for a person who has permanent life cover needs, such as funeral costs and debt. 

  • It doesn’t build cash value: Term life insurance doesn’t include an investment account, meaning that your death benefit is fixed. If you cancel your term life policy, you’ll get no money back.

The bottom line is that your insurance needs and wants will dictate what type of life cover you should take. So, before you think about cancelling your life insurance, rather consider what you need and make some adjustments with the help of a trained broker. 


Get a life cover policy from Dialdirect 


Determining the right life insurance can be hard, which is why getting help from experts can simplify the whole process. It’s easy to get help from Dialdirect: all it takes is for you to request a life cover quote online and the Dialdirect team will be available to answer your questions and advise you on how to protect your loved ones financially in the event of your unexpected death.


  • [1] Moonstone: Only 19% of South Africans are insured when funeral cover is excluded. 

  • [2] Daily Maverick: Insurance industry resilient despite billions paid out in death claims during COVID-19.

  • Moneygeek.com: What is term life insurance: pros, cons & who should buy?

  • eFinancial.com: 7 benefits of whole life insurance

  • Bankrate.com: Types of life insurance 

 Disclaimer: Dialdirect Insurance is a licensed non-life insurer and financial services provider. Terms and Conditions online.