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A Whole life insurance policy is a permanent life insurance policy that covers the entire life of a policyholder as it matures when the policyholder completes his 99 years of age and turns 100, after reading this article you will understand the entire mechanism of the whole life insurance and become capable enough to make a decision either it will be right choice for you or not.
Explain the Whole Life Insurance
It is a contract between a policyholder and a life insurance company where the policyholder pays the amount of premium either in single pay or in installments which could be paid monthly, quarterly, half-yearly, or annually to the life insurance company and in return for which the life insurance company provides the whole life cover to the policyholder.
The whole life insurance policy usually matures when the policyholder completes his 99 years of age and turns 100, if the policyholder dies before completing his 99 years of age then the entire amount of sum assured of the policy will be paid to the nominee of the policyholder.
In a term insurance policy if the policyholder outlives the maturity period then nothing is paid neither to him nor his nominee which means the term insurance policy doesn’t provide any maturity benefits, but it’s different in the case of whole life insurance policy because if the policyholder outlives the maturity age which is 99 years then entire sum assured will be paid to him while he is alive.
It provides an extra feature known as the cash value which is discussed below
The whole life insurance policy will be a good option for someone who wants safety for their family for an extended period, as there is no guarantee of anyone’s life and in case the earning member of the family dies unfortunately then it will impact that family not only emotionally but financially as well and no one wants their family to suffer.
How does a Whole life insurance policy work
A Whole life insurance policy provides life cover for the entire life as it matures when the policyholder completes his 99 years of age and turns 100.
In the basic whole life insurance plan policyholder pays a fixed amount of premium to the life insurance company till the maturity or his death whichever comes earlier against which the life insurance company promises him to pay the sum assured either to his nominee if in case he dies before the maturity or to him if he outlives the maturity period which is 99 years age.
Premium will cost around Rs.1100-1200 (P.m) for a 1 crore whole life insurance plan if your age is 20 years, the amount of premium will increase as you grow older.
You can also add riders (add-ons) to your whole life insurance which will provide you extra safety and benefits.
What is the cash value in Whole life insurance?
Generally, permanent life insurance policies include the cash value, which means the amount of premium a policyholder pays for the whole life insurance policy will be divided into two parts one will go for the life insurance and another part will be transferred to the cash value account on which you will receive regular interest and the amount of interest you receive will be added back to the cash value account.
You can withdraw the amount of cash value anytime during the term period of the policy if you wish or you can take a loan against the cash value which is optional to repay, but withdrawing it or not repaying it will surely decrease the amount of sum assured which will be paid at the time of maturity or death of a policyholder.
Types of Whole Life Insurance Policies
Some of the popular whole life insurance policies are as follows:
- Level whole life insurance: It is a basic whole life insurance where the policyholder has to pay a fixed amount of premium to the insurance company till the maturity of the policy or till the policyholder’s death, whichever comes earlier.
- Single premium policy: In this type of whole life insurance policy, the policyholder has to pay the lifetime amount of premium in single pay to the insurance company.
- Limited payment policy: In this type of whole life insurance, the policyholder pays the amount of premium to the insurance company for a limited number of years but the amount of premium is higher as compared to the level policy.
- Joint whole life insurance: In a joint whole life policy 2 people are covered in the same policy but the sum assured is paid at the time of first death only and there are no survival benefits attached to this policy.
- Modified whole life insurance: In this type of whole life insurance the policyholder has to pay different amounts of premium which is usually lowest in the beginning years and higher in later years.
Advantages of Whole life insurance
- Cash value: Whole life insurance policy comes with the benefit of cash value which means a portion of each premium paid by the policyholder is set aside and deposited into the cash value account where this amount earns regular interest. A policyholder can withdraw it or take a loan against it, but if the loan remains unpaid then it will reduce death or maturity benefits.
- Whole life coverage: A Whole life insurance policy provides life cover till the age of 99 years.
- Maturity benefits: In case the policyholder outlives the term period of the whole life insurance policy then maturity benefits (sum assured) are paid to the policyholder at that time, but in the case of term life insurance no maturity benefits are paid.
- Tax benefits: You will get tax benefits on your whole life insurance policy under section 80C, section 10(10D), and section 80D.
Disadvantages of Whole life insurance
- The amount of premium paid for the whole life insurance policy is higher as compared to the amount of premium paid for the term insurance plan, to get the same amount of life cover.
- Cash value takes a long time to grow as the interest you earn on cash value is very low.
- It’s less flexible which means it is not possible to make modifications in the existing policy once purchased.
Whole life insurance vs. Term insurance
Parameters | Whole life insurance | Term insurance |
Term period | It provides coverage for the entire life | It provides life cover for a specified period |
Surrender value | You will get the surrender value if you cancel your whole life policy before maturity | Nothing will be paid if you want to cancel your term policy before maturity |
Maturity benefits | If the policyholder outlives the maturity period which is 99 years of age, maturity benefits will be paid to him | If the policyholder outlives the maturity period then no maturity benefits are paid |
Premium | You have to a pay higher premium for the same amount of life cover as compared to the term insurance | The amount of premium charged for the same amount of life cover is lower as compared to the whole life insurance |
Cash value | Whole life insurance has a cash value | Term insurance does not include a cash value |
work | It works as a life insurance policy as well as an investment scheme | It only works as a life insurance policy |
Conclusion
Here we are at the end of this article, I hope the content has fulfilled the reason for which you are here. The knowledge that we have shared above will be enough for you to decide whether the whole life policy will be beneficial for you or not.
If you want to read about term insurance plan, then check out.
FAQs:
Q1: Can I get tax benefits on whole life insurance under section 80D?
A1: Yes, you can get tax benefits on your whole life insurance policy under section 80D only if you have added any health related riders to your policy, like critical illness rider.
You will get income tax exemption up to Rs.25k per annum under section 80D on paying the premium for any health related riders.
Q2: Does my nominee have to pay income tax on the death benefit amount?
A2: No, the amount of death benefit received by a policyholder’s nominee is tax-free under section 10(10D).
Q3: How does whole life insurance work as both life insurance and an investment scheme?
A3: A Whole life policy works as both life insurance as well as an investment scheme because a part of the premium paid by the policyholder goes towards the cash value account and earns a regular interest.
Q4: What is the minimum and the maximum age for buying a whole life insurance policy?
A4: The minimum age for buying whole life insurance is 18 years and the maximum age is 65 years.
Q5: Can I add riders to my whole life insurance policy?
A5: Yes, you can add riders to your whole life insurance policy if you want extra protection or extra benefits, but adding riders will increase your premium amount, some of the riders are critical illness riders, accidental death riders, permanent disability riders, etc.