What Is A Whole Life Policy?
Whole Life plan is also called as straight life, ordinary life. It remains throughout the insured whole lifetime provided the premiums are paid. A certain aforementioned amount is paid to the nominee in the event the insured dies. The policyholder at any time withdraw the policy or borrow against it. The maturity age for this policy is 100 years. If the insured lives past the maturity age, the policy will become matured endowment. The death benefit under this plan is tax free.
How Does it Work?
Whole life plans are very different from other types of life insurance plans. Understanding how they work can also help you decide whether they are fit for you or not. A whole life plan can be purchased against a payment which can be made as a one-off sum, on a monthly or a yearly basis. If you have purchased a unit-linked whole life policy, then your funds will be directed not only towards the purchase of your life insurance for payment of the sum assured amount and the remainder of the amount will be invested in an investment fund. In case of unit-linked/flexible whole life policies , the insurer will regularly review the policy to compare whether the value of the policy is equivalent with the cost of the life assurance which it is providing. In case the investment fund, where the remainder of the money is invested, is not performing to help cover the cost of benefits, your insurer may suggest you to either reduce the amount of your sum assured or to increase your regular contribution. Additionally, certain whole life policies also give customers the option of obtaining cover against specific illnesses or disability.
Types of Whole Life Policy:
There are different types of Whole Life Insurance Policies available in the market, each of which is designed to cater to specific requirements. Read about each of these to find out more about which one may suit your needs.
Non-Participating Whole Life Insurance:
A non-participating whole life policy has a level premium and face amount during your entire
life. The advantages of such a policy are its fixed costs and relatively low out-of-pocket premium payments. Since the policy is non-participating it does not pay you any dividends.
Participating Whole Life Insurance:
The defining feature of a participating whole life policy is that it pays dividends. Payment of dividends essentially indicates that the excess earnings which the company has accumulated via investments, savings from expenses and favorable mortality of the organization. There is no guarantee that policy holders will receive dividends. However, if dividends are paid, they will be paid in the form of cash which will be utilized to bring down the premium payment amount or will be allowed to accumulate and will attract interest at a specified rate. The dividends can also be used to for purchasing paid-up additional insurance to enhance the face amount of coverage provided.
Under these two broad categories of participating and non-participating, there are several types of whole life policies which individuals can choose from:
Level Premium Whole Life Insurance:
As the name suggests, level premium whole life insurance features level premium payments which must be paid till the insured is alive. The premiums collected in the early stages of this policy are sufficient to pay for the insurance protection costs. The surplus funds, inclusive of the interest earnings will contribute towards any shortfalls in premiums at a later stage when the annual premium payments may not be enough to cover the insurance costs.
Limited Payment Whole Life Insurance:
Under the Limited Payment Whole Life Insurance, policyholders will be required to pay premiums for a limited period of time but will receive lifetime protection. However, since the premiums are to be paid for a shorter period of time, the premium amount will be relatively higher than the premium amount payable for an ordinary whole life plan. under this kind of plan, customers have to pay premiums for a specified number of years – 10 years, 20 years, etc.
Single Premium Whole Life Insurance:
Under the single premium whole life insurance policy, individuals have to make the premium payment in a single lump sum. The payment must be made at the issue of the policy, making the policy fully paid up, with no requirements of any further premium payments. The single lump sum premium payment will provide the policy with loan value and immediate cash value, both of which could be significant in amount, depending on the amount of the lump sum premium. Given the sizeable amount of the lump sum premium payment, the Single Premium Whole Life policy is considered more as an investment insurance product.
Indeterminate Premium Whole Life Insurance:
The special feature of an Indeterminate premium whole life policy, which is otherwise similar to an ordinary whole life insurance policy, is that is allows policyholders the option of adjusting their premiums. Based on its estimate of its current earnings, cost of expense and mortality, the insurer will charge policyholders a "current" premium. In case there are any changes in the aforementioned estimates, the insurer will adjust the premium amount accordingly which the policyholder will then be charged.
Who Should Opt For Whole Life Insurance?
Whole life insurance is a suitable form of protection for a number of individuals. You can opt for whole life insurance if:
- You have made investments towards your post-retirement requirements and are seeking for other opportunities to invest in.
- You own an estate and wish to plan and bequeath your estate and savings to your beneficiaries and transfer your wealth.
- You are a young professional who has started off with their career and will be able to make premium payments for a considerable time going into the future.
Benefits of Whole Life Policy:
- Cover For Life
The insured will get cover for his entire life unlike other life insurance plans that is fixed for a certain period. The other life insurance plans will expire and it will be expensive to take another one when you really want one. In the event you die, a lump sum tax free amount is paid to the nominee. If you outlive the term, you will not receive any return. For example if a 25 year old takes a whole life plan at the age of 25 years, he will receive a lump sum payment at the age of 45, the age at which his 20 year premium payment term will expire. He can use this money for his retirement and also his cover will continue till he turns 100 or till the date he dies.
- Assurance Of Coverage, Periodic Payments And Tax Benefits
The survival benefits will be built over time which keeps increasing over time. You will get lifetime coverage along with guaranteed level premiums for a limited premium payment term. The premium is constant throughout the premium payment term. Sum assured is guaranteed and the bonuses are declared based on the performance. Some companies offer survival benefit from the end of the premium payment term till the policy matures. Tax benefits are also available to the insured under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
- Serves As A Source Of Cash
Financial experts believe that a person must keep 6-8 month’s living expenses in the form of liquid asset. It is however difficult to reserve such a huge cash while meeting retirement and long term saving goals. But with a whole life plan, you can get the cash at the end of the premium payment term.
- Loan Option Available On Your Whole Life Plan Policy
The surrender value of the policy increases over time and you can borrow against the policy’s surrender value at any time. This is a better alternative against borrowing against home or retirement accounts.
- Your Dependents Will Benefit From This Plan
The return will prove to be an additional financial source in the family. This plan is ideal for estate planning individuals who want to pass on their estate to their legal heir as it helps create wealth.
Eligibility Criteria for Whole Life Policy:
The eligibility criteria i.e. minimum/maximum entry age, premium payment term, etc., will differ from one insurer to the other. To get the details about the eligibility criteria for your chosen policy, you are advised to contact your insurer directly who can guide you better.
Whole Life Policy Riders:
Most insurance policies are accompanied by certain riders which help enhance the protection provided by the policy. Some of the commonly available riders with whole life insurance policies are critical illness rider, accelerated sum assured rider, hospital cash rider, partial/permanent disability rider, premium waiver rider, accidental death & dismemberment rider, among others. For the riders available with your policy, please contact your insurance provider.
Popular Whole Life Policies Available:
There are multiple leading insurers in India who offer competent and customizable whole-life policies at affordable rates. Some of the most popular choices available are listed below.
ICICI Pru Whole Life
- Survival benefit- Sum assured and bonuses are payable during the premium payment term.
- Life cover benefit- In the event you die, your dependent will het twice the sum assured along with the bonus that was collected during the premium payment term.
- Whole life cover- Additional sum assured is payable in the event the insured dies after completion of the premium payment term or at maturity that is when he turns 100 years of age.
- Regular bonus is declared at the end of the financial year.
- Rider to Enhance coverage – this plan comes with several riders which can be taken to enhance the coverage provided by the plan. The rider available are Accident and Disability Benefit Rider, Critical Illness Rider and Income Benefit Rider.
- Tax benefits can be availed as per the prevailing Income Tax Laws.
- Guaranteed lifetime protection.
- Flexible premium payment terms.
- Flexible bonus option.
- Paid up additions withdrawal.
- Riders are available.
- Terminal illness benefit.
- Maturity benefit is paid when the policy matures.
- Death benefit is payable to the dependent.
IDBI Federal Lifesurance Whole Life Savings Insurance Plan
- This is a non-linked participating whole life savings plan.
- 2 lump sum pay-outs are paid one is at the end of the premium payment term and the other is when the policy matures.
- Family is secured for 100 years.
- Guaranteed additions and bonuses are available to boost your savings.
- Accidental death benefit can be opted during the premium payment term.
- Maturity benefit is offered based on the plan option you have chosen.
- Death benefit is available on endowment option and on endowment with whole life option.
- Deferred maturity payment option is available.
- Three riders are available. They are Preferred Term Rider, Accidental Death Benefit Rider and Accidental Total and Permanent Disability Benefit Rider.
- Tax benefits are available as per the Income Tax Laws.
LIC Whole Life Policy
- Death benefit where the nominee will get sum assured plus the accrued bonus.
- Maturity benefit after 40 years from the date of commencement of the policy provided the insured has turned 80 years.
- Income Tax benefit is available provided all the premiums have been paid.
Whole Life Policy FAQs
How is Whole life insurance as an investment?
A. While whole life insurance mostly serves the purpose of providing protection, the Single Premium Whole Life Insurance policy is a particular kind of policy which offers the dual purpose of not only providing insurance cover but also acts as an investment.
Can I borrow against my Whole Life Insurance policy?
A. A whole life insurance policy not only provides cash value but also has no date of expiry, which enables the policy holder to easily borrow against their such a policy. For more details regarding borrowing against your whole life insurance policy, you can contact your insurer who can guide you better.
What is Death Benefit in a Whole Life Insurance Policy?
A. Death benefit is the annuity or pension which is paid to a beneficiary after the passing away of the life insured. The same concept is followed in whole life insurance policies where the beneficiary gets the amount of the life insurance policy as lump sum or through regular payments following the insured’s death.
Is Whole Life insurance an option for senior citizens?
A. Yes, whole life insurance is a viable option for senior citizens as this policy provides comprehensive cover and does not have any age limit attached under eligibility. Following the death of the insured, the beneficiary named in the policy will receive the payout / death benefit. Whole life insurance policies offer a number of useful benefits like tax exemptions, growth of cash value, permanent protection, uniform premium payments, cash access via loans and other withdrawal options.
Are early withdrawals allowed under whole life insurance policies?
A. Withdrawals from cash value may not be allowed under whole life insurance policies. However, you an check with your insurer for withdrawal provision under such a policy.
Are whole life insurance policies suitable to supplement post-retirement income?
A. Yes, whole life insurance policies are quite suitable to supplement one’s post-retirement income. The cash value of the policy can provide post-retirement income.
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