About Whole Life Policy

What is whole life insurance?

A whole life insurance policy, also known as permanent life insurance, is the policy that provides live coverage until the death of the assured. This plan offers policyholders guaranteed lifelong protection. The sum assured is decided at the time of purchase of the policy and paid to the nominee when the policy holder dies.  The maturity period on whole life insurance is generally 100 years and if the policyholder survives the period, matured endowment coverage is provided as maturity benefits.

How does whole life insurance work?

Whole life insurance is the financial protection assured to the family in case of death of bread and butter earner of family, and also the legacy created for your family. In this plan, the policy holder will pay premium on such time as agreed at the time of purchase of policy. The amount is used for providing protection and also used as investment in the company. The profit earned on invested amount will be given to policy holder as bonus. The investment grows in value and is returned to the policy holder in case s/he withdraws the plan or survives till the maturity period. In case of death of policy holder, the pre-agreed benefit will be given to the nominee as agreed with policy holder at the time of purchase of policy.

Types of whole life insurance

There are different types of whole life insurance policies available in the market designed to meet the specific requirement of the purchased. They are broadly classified as:

1. Participating in Whole life Insurance

In the participating whole life insurance, the insured are provided the bonus/ dividends out of the profit earned from their investments. The bonus is not mandatorily paid every year, however, if it is declared, the insurance company will be bound to pay it either in cash or accumulate the fund to make the lumpsum payment. If the payouts are accumulated and paid or used to offset premiums, it will attract interest at a specified rate.

2. Non participating Whole life Insurance

Non-participating whole life insurance is the low-cost insurance policy that offers a level premium and face amount during your entire life. This plan does not offer dividends or bonuses.

Under these two broad categories of participating and non participating insurance policies, there are several types of whole life policies which individuals can choose as mentioned below:

1. Level premium Whole Life Insurance

In this plan, a constant amount of premium is paid regularly till the insured is alive such that the premium covers the insurance protection costs.

2. Limited payment whole life insurance

The policyholder pays the premium for a limited period of time. The time is specified at the time of purchase and since the premium is paid for a relatively less number of years the premium amount will be higher. The life protection cover is, however, for the whole life or till age 100.

3. Single premium Whole Life Insurance

 

These are fully paid insurance policy, where the policy holder makes the payment of lumpsum premium. It is like an investment plan which provides the policy with loan value and immediate cash value, which are significant in amount.

 

4. Indeterminate premium whole life insurance

The policy offers a unique feature to adjust the premium rate depending on the estimates like current earning, cost of the expense, and mortality. In this plan, policyholders have an option to pay a premium at a higher rate in present and lower rate in the future, as the case may be.

Benefits of Whole Life Insurance

1. Life coverage

This plan offers cover for the insured for the whole life or up to the age of 100 years. In the event of the death of the policyholder, the death benefits are paid to the nominee, and if the insured lives for 100 years and more, maturity benefit will be provided.

2. Assurance of coverage, periodic payments, and tax benefits

This plan offers lifetime protection along with guaranteed level premiums for a limited term. It will provide the financial safety net to the family of the policyholder if they pass away. You can also claim the tax benefit of Rs. 20,000.

3. Serves as a source of cash

Cash liquidity should be restricted to the extent it covers 6-8 months of living expenses. However, there can be situations where you need a lump sum amount to fulfill your responsibilities and do things as planned. On the event like these, you want huge reserve of cash to live retirement  life and long term saving goals. Whole life insurance policy delivers a large amount which is received at the end of premium payment term making you financially secured.

4. Availability of Loan option

As the whole life insurance offers the coverage on the uncertainties for your entire life, you can use the plan to obtain the loan against it. This is better alternative as compared to mortgaging home.

5. Financial coverage to dependents

Whole life insurance helps you build a corpus that you leave as inheritance to your heir. It is a great option in terms of weath creation to future generation and financial security with good lifestyle assured to yur family even in your absence.

Features of Whole Life Policy

1. Death benefits

In case of death of the policy holder, the death benefit is paid to the nominee along with accrued bonuses, if any, provided all premiums of policy are fully paid till such date.

2. Guaranteed premium

The amount of premium is fixed and agreed at the time of purchase and does not change with time. Insured will pay same premium for the entire policy tenure.

3. Protection for life

The whole life plan is mainly known for protecting the family of the insured and delivering the estate to the heirs of the policyholder in the form of the payment of an assured sum together with bonuses in case of the policy holder's death.

4. Loan facility

The policyholder can avail of the loan against the policy after completing such period as mentioned in policy.

5. Tax benefits

The tax benefits up to Rs. 25,000 is available.

Do you get any additional riders on whole life policy?

yes, the whole life policy offers the facility of availing the additional riders to enhance the protection provided by the policy. Some commonly available additional riders are mentioned below:

1. Critical illness: This rider provides financial security by providing lump sum amount in case of diagnosis  of critical illness like heart attack, brain surgery, cancer, etc  in policy holder.

2. Hospital cash benefit: In case of the policy holder gets hospitalised, this rider will provide daily allowance along with post- hospitalization benefits.

3. Disability: This rider is beneficial in case policy holder comes across partial or permanent disability.

4. Accidental death benefits: If the policy holder opts for this rider, insurer will pay "Accidental Death Benefit" along with death benefits to the nominee of policy holder.

5. Waiver of premium: Under this rider benefits, policy holder will be provided an exemption on paying premium for their endowment plan if policy holder suffers from critical illness or are permanently disabled.

Who should buy Whole life Insurance?

Whole life insurance is a suitable form of protection for a number of individuals. You can choose to buy whole life insurance if:

1. You want an investment plan along with insurance cover.

2. You are driven toward creating wealth and transfer of such estate and savings to your beneficiaries.

3. You are young and ambitious person and can make payment toward the premium for consideration time in future as well.