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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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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:
The age requirements for whole life insurance may vary depending on the insurer and the specific policy. However, in general:
Insurance providers assess applicants’ health to determine their eligibility for whole life insurance. Key factors include:
Insurance companies may evaluate the financial stability of applicants to ensure they can afford the premiums and maintain the policy. Factors considered may include:
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.
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:
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 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.
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.
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.
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.
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.
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.
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.
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.
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 |
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.
1
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
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
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
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 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.
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
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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