A whole life insurance policy is in effect a permanent life insurance policy and it provides insurance coverage until the demiseof the insured person. The whole life policy stays in effect throughout the life of the person insured, so long as they continue to pay the premium. The amount of coverage is definedwhen the policy is purchased and is paid back to the nominee at the time of the demise of the assured person.Normally, the maturity of the whole life policy is 100 years. If the person assured dies earlier, the nominee is given the sum assured. But, if the person assured survives the age of 100, the insurance provider pays the matured whole life policy coverage to policyholder.


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How Does Whole Life Insurance Work?

A whole life insurance plan is a special kind of a life insurance plan. The primaryaim of a whole life policy is to help the insured person live a tension-free life, and at once endow them with the opportunity to build financial security for their successors.A whole life policy not only has death benefits, but also maturity and survival benefits. The icing on the cake is that there may also be a bonus. There are two types of whole life plans, a traditional whole life insurance plan or a unit-linked one. The traditional whole life insurance plans are further dividedinto participating and non-participating plans.

Features of Whole Life Policy

The main features of a whole life insurance plan are as follows:

  • Death Benefits :

    If the whole life policy is still in force at the time of the death of the assured, and if all the premiums have been paid, then the nominee is given the full sum assured on the day the insured person dies, along with the bonus if it has accrued.
  • Whole Life Protection :

    A whole life insurance plan is primarily devised to provide the heirs of the assured some financial security by payment of the sum assured alongwith any bonus which has accrued on the death of the policyholder. But, if the insured happens to survive the stated age, the sum assured is paid out in the form of a maturity claim.
  • Guaranteed Premium :

    A guaranteed premium means that the premium you start paying at the inception of the policy will remain unchanged throughout the term of the policy, meaning that if you start paying a premium of Rs 3000 in the beginning, your premium will remain Rs 3000 till the end of the policy.
  • You Can Take A Loan Against A Whole Life Policy :

    After the whole life policy has been in force for 3 years, you can take a loan against it.

Benefits of Whole Life Policy

  • Full Life Cover :

    A whole life insurance policy provides coverage for the whole life, right until the death of the person whose life is insured. The insured is provided coverfor theirwhole life or till 100 years of age.
  • Guaranteed Coverage :

    The logic is that if the insured person passes away, their dependents should have a financial bolster to fall back on. If it were not for the whole life insurance cover, the dependents could be left high and dry.
  • Periodic Payments :

    When the policy matures, you get the sum assured plus bonus in lump sum, but you can choose a plan which gives you survival benefits, which means that the total bonus accrued till the time of completion of premium payments is paid in lump sum, while a percentage of the sum assured is given periodically for the remainder of the life assured or till the completion of the term of the policy.
  • Tax Breaks :

    Section 80C of Income Tax Act, 1961, exempts from tax the premium paid towards a whole life insurance policy, and even the payment made to the nominee is exempted from tax Section 10(10D) of IT Act.
  • Loan Can Be Availed Against Whole Life Policy :

    As thewhole life policycovers the assured for theirwhole life, the policy is eligible for raising a loan against it. Besides, as the policy gets older, its surrender value also increases. So, you can take a loan against the whole life insurancepolicy’s surrender value, which is a much better option than taking a loan by mortgaging your home.
  • Benefits for The Dependent :

    Once you have taken out a whole life insurance policy, you can rest assured that your dependents will be taken care of after your demise. So, you don’t have to worry about what will become of your spouse or children after your demise.

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.

Whole Life Policy Riders

Most whole life insurance plans have what are called ‘riders’ which are elective benefits attached to them. Different insurance companies have different riders, they may or may not have the same riders and the terms and conditions attachedto each rider may also differ from company to company.Some riders, on the other hand, may be more or less similar in the whole life insurance plans of most companies. Below are listed some riders which are found in most whole life insurance policies:

  • Terminal illness benefit:

    This is a rider which stipulates that the payout will be made when a terminal illness is diagnosed in the insured policy holder. A terminal illness is different from a critical illness, and is most likely to lead to the demise of the person. If the sum assured of the insured is Rs. 50 lakhs, this much amount will be paid out when the terminal illness is detected.
  • Permanent disability benefit:

    This rider stipulates that future premiums will be waived off if the insured happens to suffer from a permanent disability. The sum assured of the whole life policywill be kept intact but future premiums do not have to be paid.
  • Accidental death benefit:

    As per this rider, an additional amount will be paid out if the insured’s death happens to be the result ofan accident. For instance, if the sum assured of the policy holder is Rs 50 lakhs, and it carries an accidental death benefit cover of Rs. 15 lakhs, then the sum disbursed by the insurance company will be Rs. 65 lakhs if the death of the insured is the result of an accident.
  • Critical illness benefit:

    As per this rider, if the insured person is diagnosed with a critical illness, like suffering a heart attack, kidney failure, or any kind of cancer, the insurance company will make the payout which will help the insured fight the illness. Say you have purchased a whole life insurance policy with a critical illness rider of Rs. 25 lakhs, then if and when you are detected to have a critical illness, the insurance company will you the Rs. 25 lakhs immediately so you can use it for your treatment.
  • Lumpsum or income payment:

    A person who buys a whole life insurance has the option to go in for the rider which stipulates that their nominee will be paid a monthly income rather that a lump sum amount upon their demise. This will beneficial in case the nominees have no other source of income and are going to be totally dependent on the payout/s from the whole life insurance as it will help them meet monthly expenses and properly organize their future.The income thus received is exempted from income tax under Section 10(10)(D).

Whole Life Policy FAQ’s:

Whole life insurance is a good option because it covers the life of the insured till they die or till the age of 100. Besides, it affords an opportunity for the insured to leave behind a fund that their nominees will inherit.
Yes, you can take a loan against thewhole life insurance policythat you have purchased, as long as it has attained a surrender value.
It is not required to purchase a whole life insurance for your child, as the purpose of the plan is to cover the risk of death of the earning member of the family, and to provide the nominees with either a lumpsum or a monthly income which will take care of their expenses.
A whole life insurance plan is indeed a good investment of retirement, as it stipulates a facility of part withdrawal after the full premium has been paid. This amount can be very useful in planning your retirement expenses.
The Income Tax Act’s Section 80C stipulates that the whole amount of premium paid towards your whole life insurance policy is exempt from tax subject to an upper limit of Rs.1,50,000.
Whole life insurance is not exactly beneficial if purchased in the later years of one’s life. However, if it is purchased early in life, it can go a long way in planning your retirement expenses.
You are unlikely to have to pay any premium after you retire, as usually the premium payment term is shorter that the term of the policy, so by the time you retire, the premiums would already have been paid in full.
The amount that you opt for as coverage in your whole life insurance depends on your needs, your premium payment capacity, and the amount you wish to leave behind for your nominees. The thumb rule, though, is to go in for a coverage which is at least 15 to 20 times your annual income.

Disclaimer:
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale


Consult with your financial advisor before making any decisions on insurance purchase.

*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time’

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