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Whole Life Insurance Definition: How It Works, With Examples

Whole life insurance, as its name goes, refers to an insurance plan which covers you for a lifetime. Here's all you need to know about whole life insurance.

  • Nov 22, 2021

There is a plethora of investment options in the market, especially when it comes to investing in life insurance.When you are choosing from the available options, you must pick the one which gives you long term benefits along with fulfilling all your requirements. One such plan available in the market is the whole life insurance policy.

What is Whole Life Insurance Plan?

Whole life insurance, as its name goes, refers to an insurance plan which covers you for a lifetime. The maturity age for a whole life plan is about 100 years and it also comes with a maturity benefit. This is to imply that whole life insurance will give you the sum assured at either the time of death (death benefit) or it will give you the promised maturity benefit if you live up to 100 years.

Now that we have briefly looked at what is whole life insurance plan, let us look at some of its key features.

  • One of the main objectives of a whole life plan is to insure you and your loved ones for a lifetime so that you can live in the moment and not worry about the future. That being said, whole life insurance plans also have an interesting savings component.
  • Another aspect of whole life insurance is that the premium that you pay remains constant throughout the term of the policy. It is decided at the beginning when you buy the policy and does not change thereafter.
  • Once you have completed three years since the commencement of your whole life insurance policy, you can also take loans against the corpus that you are creating. With the increasing surrender value in whole life insurance plans, you can also take loans against the surrender value.
  • Whole life insurance helps secure your loved ones’ future after you as the sum assured provided helps with various purposes, such as education, debt repayment, etc.
  • Along with everything else in a whole life plan, you can either get the sum assured as a lump sum payout or as regular income. At the time of surrender, you can also get a cash value of the money in the policy.

Is There Only One Type of Whole Life Insurance Policy?

You can find many variations within whole life insurance and choose from different types of whole life insurance plans. The variations are there in terms of the premiums, tenure, added benefits, etc., so ensure that you pick as per your convenience and make the most of your whole life plan.

Participant whole life insurance policy:

Under this type of plan, there is a face amount that is mentioned on the policy that you will get as a sum assured. However, the insurer will invest from your end into the company, and you will get a bonus if any profit is made in the investment. All these things do not impact the premium. It is important to remember that the bonus will be added as and when the company earns a profit, which may not be every year.

Non-participant whole life plan:

Here the basics of the plan will remain the same with a face amount and premium. However, there is no investment and therefore, no additional bonus.

Level premium whole life insurance:

In such a plan the premiums are paid till the policyholder is alive.

Limited premium whole life insurance:

Here the premium is paid only for a certain number of years - let’s say the first 15-20 years of the policy, and reap the benefits lifelong. Limited premium whole life insurance is a good option as you can pay premiums while you are still working and have a steady flow of income. However, since the period of payment is short, the premiums are likely to be higher.

Single premium whole life insurance plans:

You can pay the premium all at once and will not have to worry about any more payments to come.

Indeterminate premium whole life insurance policy:

Here, the premium is initially low, and then increases after a specified period of time.

Investments are a crucial aspect of financial planning and must not be taken lightly! Therefore, it is recommended that you research and read as much as possible before making any decisions!

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- A Consumer Education Initiative series by Kotak Life

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