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Simplifying Life Insurance in India
Written By
Fathima Tabasum
Fathima Tabasum
Senior Marketing Associate
Fathima defines Digit's voice in life insurance with her strong command of language. Her creative, clear writing and research skills simplify complex concepts and build trust and engagement.
Reviewed By
Ashok Manwani
Ashok Manwani
Vice President - Products
Ashok is an insurance professional with extensive experience in product development and management. In his role at Digit, he focuses on creating innovative life insurance solutions tailored to meet diverse customer needs.
What is Whole Life Insurance, Its Types & Features Explained
Whole life insurance is a multifaceted investment that offers both lifelong coverage and a savings component. Unlike term insurance, which provides coverage for a specific duration and just the death benefit, whole life insurance remains in force for your entire life and builds up a corpus too.
Let’s read about whole life insurance, exploring its features, benefits, and how it can serve as a solid foundation for long-term financial security and legacy planning.
Table of Contents
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What is a Whole Life Insurance Policy?
A whole life insurance policy is a type of permanent life insurance that offers coverage for an individual's entire lifetime, provided that they make regular premium payments. Due to this reason, it is also known as 'straight life' or 'ordinary life' insurance.
A whole life insurance combines a death benefit with a cash value component that grows over time. It provides financial protection to the beneficiary upon the policyholder's death, while the cash value serves as a tax-advantaged savings, which can be borrowed against or withdrawn by the policyholder during their lifetime, depending on the terms of their policy.
Usually, the maturity age of whole life insurance is 99 to 100 years. If the policyholder survives the policy term, he/she will receive the amount as a maturity benefit. In case of an insured person's death, the amount is receivable by the beneficiary or nominee.
Whole life insurance is often used for estate planning, wealth transfer, and long-term financial security, making it a comprehensive and enduring form of life insurance.
Different Types of Whole Life Insurance Policies
There are different types of whole life insurance policies. They are:
1. Non-Participating Whole Life Insurance
Non-participating policies do not participate in the insurance company’s investment profits and hence, do not pay bonus to policyholders. They offer guaranteed returns.
2. Participating Whole Life Insurance
Participating policies, as the name suggests, participate in the investment profits of the insurance company, thus providing policyholders with the opportunity to share in the insurer's profits. These policies share their profits in the form of bonus to policyholders.
3. Whole Life Insurance Policies for Investors
These policies focus on cash value growth and are often used as an investment tool.
4. Indexed Whole Life Insurance
Indexed policies link cash value growth to specific financial indices, offering potential for higher returns.
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Features of Whole Life Insurance Policies
The primary features of whole life insurance are:
Level Premium Guarantee
Premium rates are set with a guarantee for the entire term of the policy and are not allowed to change under any circumstances. Thus, you will have certainty and can plan your financial expenditure accordingly. You can enjoy lower premium amounts if you buy this type of plan at an early age.
Life Cover for Whole Life
Whole life policies offer coverage for 99 years, which is most people’s entire life. It protects your family and any financial dependents during old age. Additionally, these insurance policies also provide maturity benefit in the form of income payouts or lumpsum.
Tax Savings
The premiums paid towards the policy are eligible for tax deductions of up to Rs. 1.5 lakhs under section 80C of the Income Tax Act. In addition, the maturity amount which a beneficiary or policyholder receives is also tax-exempt under Section 10(10D) of the Income Tax Act, as per the prevailing income tax laws.
Loan Facilities
These policies provide a loan facility where a policyholder can obtain a loan against a life insurance policy as per the policy terms and conditions. Furthermore, you can get loans against traditional insurance policies such as money-back policies and endowment plans.
Benefits of Whole Life Insurance Policies
The following are some of the important advantages of opting for whole life insurance:
Death Benefits
In case of the death of a policyholder, whole life insurance provides the death benefit to the nominee. This includes the total sum assured and any applicable bonuses, as in the case of participating plans.
Maturity Benefit on Survival
This insurance policy provides you maturity benefits if you survive the policy terms and conditions. Some policies also provide the option of partial withdrawal.
Post-Retirement Illness Cover
Some whole life insurance policies provide coverage for terminal illness during your old age. They pay the benefit either on the diagnosis of terminal illness or upon death.
Source of Cash
This insurance policy can build cash value over time. A policyholder can use this to borrow loan against this policy at affordable rates.
Digit Life Insurance in the Spotlight
Who Should Buy Whole Life Insurance?
Whole life insurance may only be required by some due to its extra-long tenure. However, there are certain situations when you should get this insurance. These are:
Legacy Planning
If you have plans to leave a legacy for the next generation.
Lifetime Coverage for Critical Illness
In case of threatening diseases, you can get lifetime coverage.
Post-Retirement Term Cover
Whole life insurance lets you earn term cover post-retirement.
Wealth Creation & Liquidity Post Retirement
You can build wealth after retirement and get additional liquidity.
Things to Keep in Mind While Buying Whole Life Insurance
The important things you should keep in mind while buying whole life insurance are as follows:
- Check the claim settlement history of the insurance company.
- Compare various insurance policies.
- Calculate the amount of life coverage you need and the future of your insurance policy.
- Choose an affordable insurance policy from the various options given.
- Check for any additional coverage and benefits such as tax benefits and death benefits.
Now that you know in detail what whole life insurance is, you can choose the best plan for yourself accordingly. However, keep in mind that you need to pay the premiums on time to enjoy bonuses and return of sum assured on maturity.
Whole life insurance provides lifelong coverage with fixed premiums and a savings component that grows tax-deferred. It offers financial security for loved ones, helps with estate planning, and acts as a stable savings option.
However, it’s more expensive than other types of insurance and may offer lower returns than other investments. It’s best for those who value long-term stability over short-term savings. Consider your financial goals to decide if whole life insurance fits your overall wealth-building strategy.
FAQs about Whole Life Insurance Policy
At What Age Should I Purchase Whole Life Insurance?
Which is Better - Whole Life Insurance or Term Life Insurance?
Can I Have Multiple Whole Life Insurance Policies?
Can I convert my term insurance into a whole life policy?
Can I access the cash value in my whole life policy during my lifetime?
Can I use a Term insurance calculator to compare Whole Life Insurance?
Is it advisable to convert my Term Insurance to Whole Life Insurance?
Can I use my Whole Life Insurance for health-related expenses?
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