You will do anything for the ones you love.Thinking about why you need life insurance can be an emotional and stressful task. However, life insurance is one of the most responsible decisions you can make to help ensure that your spouse, children or other loved ones can continue to enjoy the quality of the life they deserve. Life is unpredictable.
So it is important to ensure that your family and loved ones are taken care of financially in case something should happen to you. This is where life insurance comes in.It can provide some financial peace of mind if the worst were to happen.
Life insurance offers a way to replace the loss of income that occurs when someone dies. Life insurance is insurance for you and your family’s peace of mind. With a life insurance policy in place, you can:
WHOLE LIFE PLAN
Whole of life cover guarantees that the insurer will pay out a lump sum to your loved ones whenever you die, rather than within a specified time frame. Another commonly used name for this type of policy is whole of life assurance.
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“Whole-of-life” plans are life assurance policies, designed to provide the policyholder with cover for their entire lifetime. The policies only pay out once the policyholder dies, when the policyholder’s dependents will receive a lump sum, usually tax-free.
Whole life plans are very different from other types of life insurance plans. Understanding how they work can also help you decide whether they are fit for you or not. A whole life plan can be purchased against a payment which can be made as a one-off sum, on a monthly or a yearly basis. If you have purchased a unit-linked whole life policy, then your funds will be directed not only towards the purchase of your life insurance for payment of the sum assured amount and the remainder of the amount will be invested in an investment fund. In case of unit-linked/flexible whole life policies , the insurer will regularly review the policy to compare whether the value of the policy is equivalent with the cost of the life assurance which it is providing. In case the investment fund, where the remainder of the money is invested, is not performing to help cover the cost of benefits, your insurer may suggest you to either reduce the amount of your sum assured or to increase your regular contribution. Additionally, certain whole life policies also give customers the option of obtaining cover against specific illnesses or disability.
There are different types of Whole Life Insurance Policies available in the market, each of which is designed to cater to specific requirements. Read about each of these to find out more about which one may suit your needs.
A non-participating whole life policy has a level premium and face amount during your entire
life. The advantages of such a policy are its fixed costs and relatively low out-of-pocket premium payments. Since the policy is non-participating it does not pay you any dividends.
The defining feature of a participating whole life policy is that it pays dividends. Payment of dividends essentially indicates that the excess earnings which the company has accumulated via investments, savings from expenses and favorable mortality of the organization. There is no guarantee that policy holders will receive dividends. However, if dividends are paid, they will be paid in the form of cash which will be utilized to bring down the premium payment amount or will be allowed to accumulate and will attract interest at a specified rate. The dividends can also be used to for purchasing paid-up additional insurance to enhance the face amount of coverage provided.
Under these two broad categories of participating and non-participating, there are several types of whole life policies which individuals can choose from:
As the name suggests, level premium whole life insurance features level premium payments which must be paid till the insured is alive. The premiums collected in the early stages of this policy are sufficient to pay for the insurance protection costs. The surplus funds, inclusive of the interest earnings will contribute towards any shortfalls in premiums at a later stage when the annual premium payments may not be enough to cover the insurance costs.
Under the Limited Payment Whole Life Insurance, policyholders will be required to pay premiums for a limited period of time but will receive lifetime protection. However, since the premiums are to be paid for a shorter period of time, the premium amount will be relatively higher than the premium amount payable for an ordinary whole life plan. under this kind of plan, customers have to pay premiums for a specified number of years – 10 years, 20 years, etc.
Under the single premium whole life insurance policy, individuals have to make the premium payment in a single lump sum. The payment must be made at the issue of the policy, making the policy fully paid up, with no requirements of any further premium payments. The single lump sum premium payment will provide the policy with loan value and immediate cash value, both of which could be significant in amount, depending on the amount of the lump sum premium. Given the sizeable amount of the lump sum premium payment, the Single Premium Whole Life policy is considered more as an investment insurance product.
The special feature of an Indeterminate premium whole life policy, which is otherwise similar to an ordinary whole life insurance policy, is that is allows policyholders the option of adjusting their premiums. Based on its estimate of its current earnings, cost of expense and mortality, the insurer will charge policyholders a “current” premium. In case there are any changes in the aforementioned estimates, the insurer will adjust the premium amount accordingly which the policyholder will then be charged.
Whole life insurance is a suitable form of protection for a number of individuals. You can opt for whole life insurance if:
The insured will get cover for his entire life unlike other life insurance plans that is fixed for a certain period. The other life insurance plans will expire and it will be expensive to take another one when you really want one. In the event you die, a lump sum tax free amount is paid to the nominee. If you outlive the term, you will not receive any return. For example if a 25 year old takes a whole life plan at the age of 25 years, he will receive a lump sum payment at the age of 45, the age at which his 20 year premium payment term will expire. He can use this money for his retirement and also his cover will continue till he turns 100 or till the date he dies.
The survival benefits will be built over time which keeps increasing over time. You will get lifetime coverage along with guaranteed level premiums for a limited premium payment term. The premium is constant throughout the premium payment term. Sum assured is guaranteed and the bonuses are declared based on the performance. Some companies offer survival benefit from the end of the premium payment term till the policy matures. Tax benefits are also available to the insured under Section 80C and Section 10(10D) of the Income Tax Act, 1961.
Financial experts believe that a person must keep 6-8 month’s living expenses in the form of liquid asset. It is however difficult to reserve such a huge cash while meeting retirement and long term saving goals. But with a whole life plan, you can get the cash at the end of the premium payment term.
The surrender value of the policy increases over time and you can borrow against the policy’s surrender value at any time. This is a better alternative against borrowing against home or retirement accounts.
The return will prove to be an additional financial source in the family. This plan is ideal for estate planning individuals who want to pass on their estate to their legal heir as it helps create wealth.
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