A whole life insurance policy is essentially a perpetual life insurance policy that offers insurance coverage until the insured person’s death. The whole life insurance remains in force for the duration of the insured’s life, as long as the payment is paid.
When the insurance is acquired, the amount of coverage is specified, and it is paid back to the nominee upon the death of the insured person. The average maturity of whole life insurance is 100 years.
If the person promised dies before receiving the money assured, the nominee receives the sum assured. However, if the individual guarantees life to the age of 100, the insurance company pays the policyholder the matured whole life policy coverage.
How Does Whole Life Insurance Work?
A whole life insurance policy is a kind of life insurance policy. A whole life policy’s principal goal is to let the insured person enjoy a stress-free life while also providing them with the chance to secure financial stability for their heirs.
Whole life insurance provides rewards not just for death but also for maturity and survival. The cherry on top is that there may be a bonus. There are two kinds of whole life insurance plans: the classic whole life insurance policy and unit-linked whole life insurance plans. Traditional whole life insurance policies are further classified as participating and non-participating.
Suppose the investment fund in which the balance of the money is invested does not perform well enough to meet the cost of benefits. Your insurer may recommend that you either lower the amount of your sum insured or raise your monthly payment. Furthermore, many whole life plans provide consumers with the option of receiving coverage for certain diseases or impairments.
Benefits of Whole Life Insurance Policy
1. Full Life Cover
A whole life insurance policy provides coverage for the whole life of the individual whose life is covered until death. The insured is covered for their whole life or until they reach the age of 100.
2. Guaranteed Coverage
The argument is that if the insured individual dies, their dependents should receive some financial support. The dependents may be left high and dry if it weren’t for the complete life insurance coverage.
3. Periodic Payments
When the policy matures, you receive the sum assured plus the bonus in a lump sum. Still, you can choose a plan that provides survival benefits, which means that the total bonus accrued until the time of completion of premium payments is paid in a lump sum. In contrast, a percentage of the sum assured is paid regularly for the remainder of the life assured or until the term of the policy expires.
4. Tax Breaks
Section 80C of the Income Tax Act of 1961 exempts from tax the premium paid toward a whole life insurance policy, and Section 10(10D) of the IT Act exempts from tax the payment made to the nominee.
5. Loan Can Be Availed Against Whole Life Policy
Because the whole life insurance protects the insured throughout the rest of their lives, it may be used to secure a loan. Furthermore, as the insurance ages, its surrender value rises. As a result, you may borrow against the surrender value of your whole life insurance policy, which is a far better alternative than mortgaging your property.
6. Benefits for The Dependent
After you get a whole life insurance policy, you can rest confident that your dependents will be taken care of in the event of your death. So, you don’t have to be concerned about what will happen to your spouse or children after your death.
Whole Life Policy Riders
Most whole life insurance policies include what are known as ‘riders,’ which are optional benefits. Different insurance companies have different riders, and they may or may not have the same riders and the terms and conditions related to each rider, which may vary from company to company.
On the other hand, some riders may be more or less comparable with most firms’ whole life insurance policies. The following are several riders that are common in most whole life insurance policies:
1. Terminal illness benefit
This is a rider that states that the payment will be paid if the covered policyholder is diagnosed with a terminal disease. A terminal sickness differs from a critical illness in that it is more likely to result in the person’s death. If the insured’s sum guaranteed is Rs. 50 lakhs; this amount will be paid out when the terminal sickness is discovered.
2. Permanent disability benefit
This rider states that subsequent premiums would be waived if the insured suffers from a lifelong handicap. The entire life policy’s amount insured will be preserved, but future premiums will not be required.
3. Accidental death benefit
According to this rider, if the insured’s death is the consequence of an accident, an extra sum will be paid out. For example, if the policyholder’s guaranteed amount is Rs 50 lakhs and includes an accidental death benefit cover of Rs 15 lakhs, the insurance company will pay Rs. 65 lakhs if the insured dies as a consequence of an accident.
4. Critical illness benefits
According to this rider, if the insured person is diagnosed with a serious disease, such as a heart attack, renal failure, or cancer, the insurance company will make a payment to assist the insured in fighting the sickness.
Suppose you have a whole life insurance policy with a critical illness rider of Rs. 25 lakhs, and you are diagnosed with a critical illness. In that case, the insurance company will pay you the Rs. 25 lakhs immediately, so you may use it for your treatment.
5. Lump Sum or income payment
When purchasing whole life insurance, a person can add a rider that states that their nominee would be paid a monthly income rather than a lump-sum payment upon their death.
This will enable the nominees to manage monthly costs and correctly plan their future if they have no other source of income and are entirely reliant on the payout/s from the whole life insurance. Section 10(10) exempts the income so earned from income tax (D).
Wrapping It Up
Although it may seem that you must pick between whole life insurance and other types of life insurance, the fact is that many financial plans generally involve a combination of different types of policies, such as term and whole life insurance.
This may provide you with more flexibility in preparing for any of life’s numerous possibilities. A financial advisor can assist you in determining the appropriate insurance mix and demonstrating how it fits into your entire financial strategy.