Whole life insurance is an insurance policy that covers a person throughout their life. It is one of the policies that is permanent life insurance which covers 100 years of an individual and the policyholder will receive the matured endowment tax-free.
In case of the death of the policyholder, the sum assured at death will be paid to the nominee as well. This makes the whole life insurance policy a beneficial policy that not only covers an individual’s life but also provides maturity benefits.
A Whole Life Insurance policy is distinct from other life insurance types, necessitating a deeper understanding. In this article, we will delve deep into what a Whole Life Insurance policy entails, how it operates, its benefits, various types, and more.
How Does Whole Life Insurance Policy Work?
Understanding how a whole life insurance policy works is important so that you can make a smart decision about whether to get this policy or to find another policy that suits your requirements.
You can purchase the whole life insurance policy with a one-time payment, every month or yearly basis. There are various types of whole life insurance policies, one such type of policy is called a Unit-linked whole life insurance policy. This policy not only covers your life but also provides you with a sum-assured amount which will be invested into an investment fund.
The insurance company provides this life insurance policy to those who want to be covered yet want to earn a sum assured at maturity. Unit Linked insurance policies are designed such that the policyholder earns the benefit of both life insurance and a maturity benefit.
Benefits of Whole Life Policy
There are a lot of benefits of a whole life insurance policy, which are as follows-
- The whole life insurance policy provides cover to the individual for whole life until his/her death. The policy has a premium payment period during which the premium for the policy has to be paid after that a lump sum payment from the insurance company will be paid to you. Even after this payment, you’ll be covered till life or 100 years eligible for the benefits of the whole life insurance policy
- You can take tax benefits under section 80C and section 10D of the Income Tax Act, 1961
- With your Whole Life Insurance Policy as collateral, you can take a loan against it at a very nominal interest rate
- It is a wealth-generating scheme using which a legal heir can get an additional inheritance of wealth in the form of an insurance sum assured at death
- The survival benefits will be built over time which keeps on building over time and for this, you’ll receive lifetime coverage with guaranteed level premiums for a limited premium payment term.
- The sum assured is guaranteed with a performance-based bonus declaration. Some companies offer survival benefits from the end of the premium payment term till the policy matures, i.e. 100 years.
Types of Whole Life Insurance
There are several types of whole life insurance policies available in the market that you can choose from. The following are the types of whole life insurance policies that you can choose from-
Non-Participating Whole Life Insurance
The non-participating whole life insurance policy is a fixed-cost, low-premium insurance policy that provides you with fixed returns and has a level premium and face amount during your entire life. This policy does not pay you any dividends.
Participating Whole Life Insurance
The biggest advantage of the participating whole life insurance policy is that it pays you dividends. The payment of the dividends is provided in case of the good earnings of the company that got the investment from the life insurance company. The dividend payment is not guaranteed however, if paid, would receive cash awards which can be utilized for bringing down the premium payments or will be used for increasing the paid-up additional insurance. The dividends can also accumulated and attract a specific interest rate. There are several types of participating whole life insurance which are as follows-
Level Premium Whole Life Insurance
In Level premium whole life insurance, the premiums collected in the early stages of the policy and the premiums collected at later stages remain the same. This policy levels the premium cost throughout the policy lifetime to remove the increasing premium cost and level the premium payments. The premium paid during the initial stage will be used to cover the insurance cost and any surplus funds, inclusive of the interest-earning will contribute towards any shortfall in the premiums at the later stages.
Limited Payment Whole Life Insurance
Limited Payment Whole Life Insurance provides you the benefit of managing the overall amount that you’ll pay over the lifetime of the policy. This type of policy contains a cash saving component which is known as cash value. This cash value can be withdrawn or taken loan against throughout his/her lifetime and this comes at a fixed rate of interest.
Single Premium Whole Life Insurance
This whole life insurance policy requires the policyholder to make a single lump sum premium payment towards the policy. This allows the life insurance policy to have an immediate cash value due to the paid-up value of the policy. This type of insurance is more considered an investment insurance product that safeguards your investment as well as provides you with an option to be insured.
Indeterminate Premium Whole Life Insurance
Indeterminate Premium Whole Life Insurance is an insurance policy for which you’ll have to pay an adjustable premium. The insurance company will determine the “Current Premium” cost based on their estimate of investment earning, mortality, and expense cost. The policyholder has to pay this cost to the insurance company as a premium to be insured.
Whole Life Insurance vs. Term Life Insurance: Comparison
The following is a detailed comparison between Whole Life Insurance and Term Life Insurance–
| Whole Life Insurance | Term Life Insurance |
| Whole Life Insurnace policy last for the full life-time of the individual | The term life insurance only lasts for a specific term only |
| This insurance policy includes a cash value, which means that a corpus is accumulated over time. | This policy does not have any cash value |
| The premium paid in a whole life insurance policy is higher | The premium paid in a term insurance policy is lower |
| It is a good option for someone looking for a long-term investment-based insurance plan | This policy is good for short-term insurance with good coverage |
| Premiums are initially high but remain constant throughout the policy premium payment period | The premium amount increases at every renewal period |
FAQ
Yes, the whole life insurance policy or universal life insurance policy is an insurance policy that provides the benefit of borrowing a loan against it.
A death benefit is a sum assured under the insurance policy that is provided to the nominee of the insurance policy in case of the death of the policyholder.
Yes, senior citizens can get the whole life insurance policy however, you’ll have to check with the insurance company to find out the eligibility age for the insurance policy.
Yes, you can but it is not recommended as the whole life insurance policy is planned to cover your life till death hence, premature withdrawal would end all the benefits that you get out of the whole life insurance policy.
