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Whole Life Insurance

Whole life insurance provides coverage till you turn 99 years old and ensures that your family's financial needs are met in your absence. It also builds a savings component (cash value) that grows over time.

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  • Updated on: Oct 25, 2024
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What is Whole Life Insurance Plan?

As the name goes, whole life insurance refers to an insurance plan that covers you for a lifetime. It also comes with a maturity benefit that is paid when you turn 99 years old. This implies that whole life insurance will either give you the sum assured at the time of death (death benefit) or the promised maturity benefit if you live up to 99 years.

Moroever, whole life insurance includes an investment component as well. A part of your premium is invested by the insurer. This investment component grows over time to create ‘cash value’.

Whole life insurance meaning can be better understood with an example.

Let’s say you buy whole life insurance at the age of 20. You will be making regular premium payments, a part of which will be used to create a savings fund. If a need arises, you can withdraw money from this fund. Further, your family members will receive a death benefit in case of your unfortunate demise during the policy term. However, if you reach the age of 99, you will get a maturity benefit as per the policy details.

How Does Whole Life Insurance Work?

After understanding the whole life policy meaning, you should study the key values that form the basic structure of a policy. The insurer’s actuaries determine these values based on your coverage amount, health issues, life expectancy, etc.

  • Guaranteed level premium: Like any other insurance policy, whole life insurance also involve regular premium payments. The premium value is set at the buying stage. You will continue to enjoy coverage as long as you keep making the premium payments.
  • Guaranteed death benefit: This is the main benefit of whole life insurance. If you unfortunately pass away during the policy term, the policy beneficiaries will receive a fixed death benefit amount.
  • Guaranteed cash value: You can specify what percentage of your premiums you want to be set aside to create the cash value of the policy. This value will grow at a fixed rate till you turn 99 years old. You can borrow money against the cash value and use it to meet financial obligations like paying premiums or building a retirement fund.
  • Guaranteed endowment: This is the maturity benefit of the whole life insurance. In other words, if you survive till 99, you will receive a guaranteed endowment amount.

Types of Whole Life Insurance Plans

  • Participants Whole Life Insurance
  • Non-Participant Whole Life Insurance
  • Level Premium Whole Life Insurance
  • Limited Premium Whole Life Insurance
  • Single Premium Whole Life Insurance
  • Indeterminate Premium Whole Life Insurance

Participants Whole Life Insurance Policy

Under participants whole life insurance, a face amount 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. 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

As the name suggests, when you buy non-participant whole life insurance, you do not participate in the insurance company’s profits. This means that you will not get any dividends. However, the benefit is that such plans offer a predictable premium structure and guaranteed death benefit. Your premium amount remains constant, making it easier to budget long-term. These plans are also more affordable than their participating counterparts.

Level Premium Whole Life Policy

In case of level premium whole life insurance, the premiums are paid till the policyholder is alive. With this type of coverage, premiums are thus guaranteed to remain the same throughout the contract.

Limited Premium Whole Life Policy

The premium is paid only for a certain number of years - the first 15-20 years of the policy, and the benefits can be reaped lifelong. Limited premium whole life insurance is a good option as you can pay premiums while still working and have a steady flow of income. However, the premiums will likely be higher during the short payment period.

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. The policy requires that the holder has access to a large sum of money upfront, meaning it’s not financially feasible for many individuals.

Indeterminate Premium Whole Life Insurance Policy

The premium is initially low and then increases after a specified period of time. The insurance company will charge a “current” premium based on its current estimate of investment earnings, mortality, and expense costs.

Benefits of Whole Life Insurance

From wealth creation to guaranteed premiums, whole life insurance offers several benefits that can ensure peace of mind for both you and your beneficiaries. The following points further explain what makes these policies indispensable to your long-term financial strategy.

The Cost is Guaranteed to Stay the Same

One of the primary benefits of a whole life insurance is that your premiums are locked in for the entire life of the policy. This means you will not have to experience any surprise increases and can plan your financial commitments with certainty.

Fixed Benefit for Your Beneficiaries

When you buy life insurance, you want to be certain that your family members will receive adequate financial coverage. Whole life insurance ensures the same as the policy documents clearly specify the guaranteed death benefit that will be paid in case of your unfortunate demise. This ensures that your loved ones will have financial security, regardless of when the payout occurs.

Tax-Advantaged Benefits

In addition to lifelong coverage and investment options, whole life insurance allows you to save money through tax benefits. You can reduce your tax liability under sections 80C and 10(10D) by purchasing a whole life plan. Moreover, the cash value grows on a tax-deferred basis, which can enhance your overall financial plan.

Potential Dividends

Participating whole life insurance allows you to share the insurance company’s profits and receive dividends. You can use the dividend amount to increase the policy’s cash value, reduce premiums, or directly receive cash. While dividends are not guaranteed, they provide a potential financial boost.

Retirement Funding

Whole life insurance can also be used as a retirement planning tool. The accumulated cash value can be accessed during your retirement years. You can use the saved amount as a source of supplemental income, especially when other retirement funds may be limited.

What are the Eligibility Criteria for Whole Life Insurance?

Before purchasing the best whole life insurance policy, it is essential to go through the eligibility criteria set by insurance providers. Here’s a comprehensive guide to the eligibility requirements for whole life insurance:

Age Criteria

The age requirements for whole life insurance may vary depending on the insurer and the specific policy. However, in general:

  • The minimum age to apply for whole life insurance is typically 18.

  • The maximum age for eligibility can vary but is often between 65 and 75. Some insurers offer policies with no maximum age limit.

Health Status

Insurance providers assess applicants’ health to determine their eligibility for whole life insurance. Key factors include:

  • Medical History: Applicants must disclose any pre-existing medical conditions, previous surgeries, or ongoing treatments. Any habit that can have a long-term impact on health must also be disclosed. For instance, some insurers may have separate requirements for whole life or term insurance for smokers.

  • Medical Examination: Depending on the insurer’s underwriting guidelines, applicants may undergo a medical examination to assess their health and insurability.

Financial Stability

Insurance companies may evaluate the financial stability of applicants to ensure they can afford the premiums and maintain the policy. Factors considered may include:

  • Income: Applicants may need proof of income to demonstrate their ability to pay premiums.

  • Debt-to-Income Ratio: Insurers may assess the applicant’s debt obligations relative to their income to determine financial stability.

  • Smoking Status: Smokers typically pay higher premiums due to increased health risks associated with smoking. Some insurers offer separate premium rates for smokers and non-smokers.

  • Coverage Amount: The eligibility criteria may vary depending on the desired coverage amount. Higher coverage amounts may require stricter eligibility requirements.

How to Buy a Whole Life Term Plan Online?

Buying whole life insurance online offers convenience and accessibility, allowing individuals to secure lifelong protection and financial security with just a few clicks. Here’s a step-by-step guide on how to purchase whole life insurance online.

  • Research and Compare: Thorough research is essential when beginning your journey to purchasing whole term life insurance. Take time to visit various insurance company websites and carefully examine their offerings. Pay close attention to customer reviews and the company’s claim settlement ratio.
  • Gather Required Documents: Organize all necessary documentation to ensure a smooth experience before starting the application process. You will need standard identity proof such as your PAN card or Aadhaar, along with age verification documents like your passport or driving license. Keep your address proof ready, along with income documentation, recent photographs, and any relevant medical records.

  • Fill out the Online Application: Visit your chosen insurer’s website and complete the online application form with accurate personal information. Be particularly thorough and honest when disclosing medical conditions. Select any additional riders that align with your needs, and choose a premium payment frequency that suits your financial planning.

  • Medical Examination: Depending on your age, health status, and coverage amount, a medical examination may be required. Wait for the insurance company to process the medical reports. The results of these tests may impact your premium rates or policy terms.

  • Payment and Documentation: Review the final premium amount carefully once your application is approved. Ensure it aligns with your budget and the initial quotes provided. Pay through the insurer’s secure payment gateway, keeping payment confirmation records. Download and save all policy documents, including the policy schedule, terms and conditions, and any rider documents.

Premiums in Whole Life Insurance Policy

A portion of the whole life insurance premium goes towards life cover, while the remainder is invested for your legacy. The policy remains active as long as you continue paying premiums. Your family will benefit from whole life insurance in the following scenarios:

  • If you die during the policy term: If you pass away before age 99, your family will receive the sum assured as a death benefit, regardless of whether the death is due to natural causes.

  • If you survive: After age 60, all premiums paid will be returned to you. Additionally, if you live until age 99, you will receive a survival benefit equivalent to the sum assured.


These benefits ensure that your family remains financially protected even in your absence. You can determine the premium burden of whole life policies online using tools similar to the term insurance calculator.

Riders in Whole Life Insurance Policy

Riders are supplementary benefits that policyholders can add to their whole life insurance policies for an extra cost. They offer specific protections or enhancements beyond the standard death benefit provided by the base policy.

Critical Illness Rider

This rider provides a lump-sum payout if the insured is diagnosed with a critical illness specified in the policy, such as cancer, heart attack, or stroke. The funds can cover medical expenses, loss of income, or other financial obligations during a challenging period.

Accidental Death Benefit Rider

In the event of the insured’s accidental death, this rider provides an additional payout on top of the base death benefit. It offers extra financial protection to the beneficiaries in case of accidental demise, such as a fatal car or workplace accident. Some insurers may also offer disability insurance riders for accident-related injuries.

Waiver of Premium Rider

If the insured becomes disabled due to illness or injury and cannot pay premiums, this rider waives future premium payments while keeping the policy active. It ensures the policy remains in force, providing uninterrupted coverage during financial strain.

Guaranteed Insurability Rider

This rider allows the policyholder to purchase additional coverage at specified intervals without undergoing a medical exam or providing evidence of insurability. It is beneficial for individuals who anticipate significant life events, such as marriage or the birth of a child, where additional coverage may be needed.

Child Term Rider

This rider provides life insurance coverage for the insured’s children. In the unfortunate event of a child’s demise, the rider pays a death benefit to help cover funeral expenses or other financial needs. Additionally, it often includes converting the child’s coverage to a permanent policy once they reach a certain age.

Examples of Whole Life Insurance

Let us take two examples of whole life insurance to understand how it works and how different situations affect it:

Example 1. Meet Shreya Kapoor, a 35-year-old software engineer who wants to ensure her family’s financial security in case of her untimely demise. Shreya decided to opt for whole life insurance with a coverage amount of ₹1 crore.

  • Premium and Payout: Shreya pays an annual premium of ₹1.5 lakhs for a policy that provides her with lifelong coverage. In the unfortunate event of her death, the policy guarantees a tax-free lump sum of ₹1 crore to her nominated beneficiaries.

  • Cash Value Accumulation: As Shreya continues to pay premiums, the policy accumulates cash value over the years. Shreya can utilize this cash value during her lifetime, either through withdrawals or policy loans, providing her with a financial safety net for unforeseen circumstances.

  • Tax Benefits: Shreya’s beneficiaries’ death benefits are exempt from income tax. Additionally, the cash value growth is tax-deferred, offering her tax advantages while the policy is in force.

Example 2. Raj Malhotra, a 40-year-old entrepreneur, is focused on building a substantial legacy for his family. To ensure financial stability for future generations, Raj chooses whole life insurance with a coverage amount of ₹2 crores.

  • Premium and Payout: Raj pays an annual premium of ₹3 lakhs for a comprehensive policy that guarantees a tax-free lump sum of ₹2 crores to his loved ones in the event of his demise. This ensures that his family has the financial means to maintain their lifestyle and meet outstanding obligations.
  • Cash Value Accumulation: Whole life insurance provides a substantial death benefit and accumulates cash value over time. Raj can leverage this cash value for various financial needs, such as funding his children’s education or supplementing his retirement income.

  • Business Planning: As an entrepreneur, Raj recognizes the flexibility of whole life insurance. The policy can be a key asset in his business planning, offering liquidity through policy loans if needed.

Whole Life Insurance vs. Term Life Insurance

Choosing between whole life insurance and term insurance benefits involves considering individual financial goals, risk tolerance, and preferences. Here is a table comparing parameters between whole life insurance and term insurance:

Aspect

Term Life Insurance

Whole Life Insurance

Policy Duration

Flexible - Can be for a lifetime or a specified term

Lifetime coverage

Premiums

Flexible - Can be adjusted within certain limits

Fixed for the life of the policy

Cash Value

Accumulates over time, based on premiums and interest rates

Guaranteed to accumulate over time, often with dividends

Investment Component

Has no investment component. It only provides pure life coverage for a specific period.

A portion of the premium goes into a cash value account that grows over time, offering a guaranteed return.

Flexibility

Allows for adjustments in premiums, death benefits, and investment options

Limited flexibility, fixed terms, and benefits

Death Benefit

Can be adjusted based on the policyholder’s needs and circumstances

Fixed and guaranteed, does not change over the life of the policy

Cost

Generally lower initial premiums, but can increase over time

Higher initial premiums but remain constant throughout the policy’s life

Risk Tolerance

Suited for individuals comfortable with market-related risks

Suited for those seeking a conservative, stable investment approach

Conclusion

Understanding what is whole life policy is just the first step. Taking decisive action is what truly secures your family’s financial future. Your approach to whole life insurance should be tailored to your current life stage. Those in their 20s and 30s might find it prudent to begin with a smaller policy that can be upgraded later, while individuals in their 40s and 50s should consider policies emphasizing accelerated cash value accumulation. You can also partner with a financial expert who can help you decide whether you should select whole life insurance, ₹1 crore term insurance, ₹2 crore term insurance, or other policies as per your financial goals.

FAQs on Whole Life Insurance


1

How is the cash value of a whole life insurance policy calculated?

The cash value of whole life insurance is calculated based on the premiums paid, the insurer’s investment performance, and the policy’s expenses. Over time, the cash value accumulates tax-deferred and can be accessed by the policyholder through withdrawals or loans.



2

Are dividends paid on whole life insurance policies?

Some whole life insurance policies, known as participating policies, may pay dividends to policyholders. These dividends are a portion of the insurer’s profits and are not guaranteed. Policyholders can receive dividends as cash payments, use them to reduce premiums, accumulate them with interest, or purchase additional insurance coverage.



3

Can I convert my whole life insurance policy to another type of policy?

Yes, many whole life insurance policies offer conversion options that allow policyholders to convert their policy to another type of policy, such as a universal life insurance policy, without undergoing a medical exam. However, specific terms and conditions may apply, so checking with your insurer for eligibility and details is essential.


4

How do I know if whole life insurance is right for me?

Determining if whole life insurance is right for you depends on various factors, including your financial goals, risk tolerance, and long-term needs. Whole life insurance provides lifelong coverage, cash value accumulation, and potential dividend payouts, making it suitable for individuals seeking permanent protection and investment growth.

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.

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