If you’re someone who prioritises health above all else, you might have spared a thought – if not several – for purchasing health insurance. Being covered by a health insurance policy ensures that your finances are taken care of in case of a health crisis so that an avalanche of bills doesn’t engulf you all at once. Going a step further, it is also possible to take a life insurance plan that takes care of not just the policyholder’s needs but also those of the entire family.
A special type of life insurance, called whole life insurance, does not come with an expiry date. It only ends with the death of the insured. Unlike term insurance, which only provides coverage for a specific period of time, a whole life insurance stays valid as long as the premium is paid.
Term v/s whole life insurance
As mentioned before, term insurance only covers a specific period of time, while whole insurance (which is a type of permanent life insurance) has no fixed term. It provides protection against death whenever it may happen.
Permanent life insurance provides cash value unlike term insurance.
Features of whole life insurance
Here are some things you need to know about a whole life insurance policy:
1. It is classified into two broad types: non-participating and the participating whole life insurance. The former has fixed costs, level premium and face amount all your life and low premium payments out of the pocket. The latter pays dividends out of the earnings accumulated by the company via investments.
Other subtypes of whole life insurance are level premium, limited payment, single premium, and indeterminate premium whole life insurance. Level premium requires the policyholder to pay the premium until he dies. Limited payment means that the premium needs to be paid for a shorter period of time (protection is still lifelong) but the amount to be paid is higher. Single premium involves paying the entire premium as a lump sum. Indeterminate premium allows the policyholder to adjust the premium based on current earnings, cost of expense, mortality, etc.
2. The maturity age is usually 100 years. If the insured dies before that, the nominee receives the sum assured. If he lives beyond 100 years, then the life insured gets the matured endowment coverage.
3. The premium amount does not vary throughout the span of the plan, that is, throughout the life of the insured.
4. The payment to the nominee is made right on the day of death of the life insured.
5. The premium paid towards the whole life insurance policy is tax exempted, as is the amount paid to the nominee or the life insured.
6. A loan can be obtained against the life insurance policy after completion of three years.
7. As an alternative to the lump sum payment method, you can also opt for benefits in the form of periodic payments upon maturity. The total accrued bonus until the completion of the term is paid as a lump sum, and a percentage of the sum assured is paid till the completion of the policy term, or till the insured survives.
Ensure that you go through the features of all types of policies before you choose what’s right for you.