Choosing the Right Life Insurance Policy in Nigeria: Term Life vs. Whole Life

When choosing a life insurance or assurance policy in Nigeria, it is important that you get a full knowledge of everything it encompasses.

Max Life Insurance defines the term Life Insurance as “a type of insurance scheme that makes a payment to a specific beneficiary or group of beneficiaries in the case of the policyholder’s demise”.

Simply put, life insurance creates hope for the living in cases where the policyholder happens to be the sole provider or breadwinner of a family.

In Nigerian society, for instance, a father of a family who seeks to assist his family in case anything happens to him in the future that may take his life will choose to do an insurance cover to that effect. When he passes, the family can have some money to fall back on. This is a typical example of life insurance coverage.

For a person searching to do life insurance, the following types are available to consider:

1. Term Life Insurance
2. Whole Life Insurance

Term and Whole Life are somewhat similar but, of course, very distinctive because they serve their respective purposes in a bid to sustain life insurance.

A Term Life insurance policy is a life coverage scheme that is open only for a period of time. One good thing about this policy is that as long as the cover is active and running and the insured happens to die within the specified time limit, there is a high possibility of payout. There will be no payout should the insured remain alive when the policy has lapsed.

Types of Term Life Insurance

Some types of term life insurance include the following;

1. Level Term Insurance

This happens to be the simplest and most affordable term insurance coverage, which provides a payout at the instance where the insured dies during the policy. Upon expiration, it will have no value.

The value of term life is guaranteed death benefits.

2. Renewable Term Insurance

A policy is renewable when there is an option to regain an already expired contract to keep it running. If the insured reaches 65 years of age, the policy is no longer renewable because the risk associated with individuals at that age is high.

3. Convertible Term Insurance

This cover creates the possibility for conversion from one policy to another, for instance, from term life to whole life, but when cases like this surface, only part conversion is made.

4. Decreasing Term Insurance

This policy occurs when a term life insurance is initiated mostly to reduce capital outstanding debts on a house mortgage. Even when the coverage is reduced yearly, the premium remains the same, and they are usually payable for a shorter period than the policy term itself. Payment stops when the debt is realized.

5. Increasing Term Insurance

This policy arose as a result of the decline in the amount of real cover due to inflation. Various attempts were made to combat this by introducing term life insurance policies with some form of increasing sum assured.

This cover allows the opportunity to increase the sum insured, possibly at the end of a term policy. Some offices offer policies that could be renewed each year by 10% of the original sum insured.

The ideal increasing policy is the index-linked one, in which the sum assured is increased yearly by the Retail Prices Index (RPI) increase.

Whole Life Insurance Policies

This simple life insurance policy pays out the sum insured when the life insured passes. Whole life insurance policies are permanent and usually more expensive than term life insurance because of their defined nature of paying claims.

Remember that in term assurance, death is not always certain, hence, payout is not always tenable.

Whole Life Insurance continues without an expiration date.

Types of Whole Life Insurance Policies

The forms of a whole life insurance policy include the following;

1. Non-Profit Whole Life Policies: This policy is payable throughout life. It pays out only a fixed amount of money to the deceased when death occurs without any added profits or benefits.
2. With Profits Whole Life Policies: This policy is just like the nonprofit whole life policy. The only difference is that profits allocated upon the date of death will also be payable.
3. Low-Cost Whole Life Policies: This policy is a with-profit whole life contract with guaranteed cover. Low-cost whole-life policies are written with two sum insureds.

(I) The basic sum insured plus bonuses; or
(II) The guaranteed death sum insured.

Premiums for low-cost Whole Life policies are usually lower than those for non-profit Whole Life policies, and the benefits will not be as high as those for full with-profit Whole Life policies.

They are mostly used for family protection and inheritance tax funding.

Having examined both life insurance types in their entirety, it is time to perform a comparative analysis of both forms.

S/N	Term Life Insurance	Whole Life Insurance
1.	Cover is provided within a specified period.	There is an investment element, and profit can neither be made nor not depending on the insured.
2.	It can be affordable as claims are not usually certain.	It is expensive as paying claims is certain.
3.	It has no investment element. ( there is no room for profit generation)	There is an investment element, and profit can neither be made nor not depending on the insured.
4.	It covers for pure protection only and no other benefits.	It covers pure protection only and no other benefits.

The Bottom Line

The choice between Term Life and Whole Life insurance in Nigeria depends on individual needs and long-term financial goals. Term Life Insurance is ideal for those seeking affordable, short-term coverage, whereas Whole Life Insurance suits those looking for lifelong coverage with an investment component.

Assess your financial situation, consider the pros and cons, and choose a policy that provides peace of mind and aligns with your financial planning. Your decision could mean the world to your loved ones, offering them stability and security in your absence.

Reach out to a trusted advisor to help navigate this crucial choice for a secure financial future.