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What is Whole Life Insurance? Meaning, 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.

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the policyholder's death, while the cash value serves as a tax-advantaged savings, which can be borrowed against or withdrawn by the policyholder during their lifetime, depending on the terms of their policy.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.

What Are the 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.

5. Variable Whole Life Insurance

Variable policies allow policyholders to invest their cash value in a range of investment options, potentially yielding higher returns but with associated risks.

6. Ordinary Whole Life Insurance

Ordinary policies provide guaranteed death benefits, fixed premiums, and cash value accumulation.

7. Limited Payment Whole Life Insurance

Limited payment policies require policyholders to pay premiums for a specific period while keeping coverage for life.

8. Modified Premium Whole Life Insurance

Modified premium policies offer lower initial premiums that increase over time.

9. Single Premium Whole Life Insurance

Policyholders make a single, substantial premium payment to secure lifelong coverage and cash value growth.

What Are the Features of Whole Life Insurance Policies?

The primary features of whole life insurance are:

1. 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.

2. 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.

3. 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.

4. 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.

What Are the Benefits of Whole Life Insurance Policies?

The following are some of the important advantages of opting for whole life insurance:

1. 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.

2. 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.

3. 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.

4. 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.

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:

If you have plans to leave a legacy for the next generation.
In case of threatening diseases, you can get lifetime coverage.
It lets you earn term cover 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.

FAQs About Whole Life Insurance Policy

At What Age Should I Purchase Whole Life Insurance?

The minimum age to purchase and enter a whole life insurance contract is 18 years. On the other side, the maximum age to do so is between 60 and 65 years. Therefore, you can buy whole life insurance anytime between 18 to 65 years, provided you have a stable income to pay premiums on time. Here, your income will justify the amount of coverage you should buy.

Which is Better - Whole Life Insurance or Term Life Insurance?

If you need coverage for a shorter duration, term life insurance can be an ideal option as the premiums are affordable. On the other hand, for extended coverage throughout life, whole life insurance would be an ideal choice.

Can I Have Multiple Whole Life Insurance Policies?

Yes, you can have multiple whole life policies to address different financial goals.

Can I convert my term insurance into a whole life policy?

Many insurers offer conversion options in their term plans. These term plans are known as convertible term plans, that allow you to convert a term policy to a whole life policy.

Can I access the cash value in my whole life policy during my lifetime?

Yes, you can borrow against or withdraw funds from the cash value, but it may affect the death benefit.

Can I use a Term insurance calculator to compare Whole Life Insurance?

No, a term insurance calculator is specifically designed to estimate premiums and coverage for term plans. It doesn't account for features like cash value or lifelong coverage found in Whole Life Insurance. For accurate comparisons, use dedicated tools or consult an advisor for both policy types.

Is it advisable to convert my Term Insurance to Whole Life Insurance?

Upgrading a term insurance policy of ₹1 crore term plan or more to Whole Life Insurance can be beneficial if you seek lifelong coverage and the opportunity to build cash value. This option may offer more advantages compared to plans with lower coverage amounts. However, it's important to align this decision with your long-term financial goals and ensure the premiums remain affordable.

Can I use my Whole Life Insurance for health-related expenses?

While Whole Life Insurance is not designed to cover health expenses directly, the cash value can be borrowed against for various needs, including health-related expenses. It’s advisable to have health insurance for dedicated health coverage.