Types of Whole Life Policy
There are basically two types of whole life insurance policies. They are non-participating and participating whole life insurance policies. A non-participating policy has a constant premium and face-value features. This policy does not attract any bonus and nor does it pay out any dividends. On the other hand, a participating whole life insurance policy does attract bonuses. The premium that the insurance company receives from this policy is invested by them, and the net earnings of the company are then distributed to the whole life policy holders as bonuses. But there is no assurance that a bonus will be declared every year. However, the bonus that a policy holder earns can be paid out in different ways, such as A) accumulated lumpsum, B) paid indirectly by offsetting future premiums, or C) as paid-up additional sum-assured. Specifically, the four types of whole life insurance plans are as follows:
Level Premium Whole Life Insurance :Under this plan the premium to be paid on the whole life insurance policy remains unchanged throughout the term of the policy. So, the amount you start paying as premium, say for example Rs 3000, will remain Rs 3000 till the end of the term of the policy; it will not be increased with each passing year.
Limited Payment Whole Life Insurance Plan :Under this plan, the holder of the policy pays premium for a specific period, not necessarily for the whole term of the policy, but the cover remains for the whole term, say 100 years or the whole life. As premium under this plan has to be paid only for a limited period, the amount of the premium tends to be relatively high.
Single Premium : Under this plan of whole life insurance, the insured has to pay only a single large premium, which is like a one-time investment. Since the amount of the premium is large, the investment builds up quickly, resulting in a substantial benefit for the dependents of the insured even if the insured should happen to pass away soon.
Indeterminate Premium : Under this whole life insurance plan, there is a two-pronged premium rate charged to the policyholder. At first, a high premium rate is charged from the policyholder for a few years, which is invested by the insurance provider, who use a portion of the earnings for it to reduce the premium rate for the policyholder over the following years.