Life insurance is one of the pillars of proper financial planning of a family. Often, families get confused as to whether go for fixed term policies or one of the whole life insurance plans available in the market. Today, let us resolve that confusion & understand more about what these plans are all about & how suitable these are for you.
What is a whole life insurance plan?
In a fixed term insurance plan, there is a fixed duration (in years) till which the insurance cover will be active. After this period, the insurance cover ceases. Unless it is a Term Insurance Plan with Return of Premium (TROP), the insurer does not pay any maturity benefits to the policyholder.
In contrast, whole life plans do not have a fixed term & the plan is effective till the entire life of the policyholder or 100 years, whichever is earlier. So, while maturity benefit is paid out at a certain age, say 80, even if the insured person lives to say 90 years, insurance cover will remain active till he is alive, and when he dies, his nominee gets the death benefit. The premium remains constant throughout the life of the policyholder.
Also, as compared to the low cost pure term insurance plans which do not offer any surrender/maturity benefit, whole life plans have an investment component too and this is often used as a savings instrument. The insurer declares a particular bonus rate each year & the policy builds certain cash value over time which can be used for early surrender or obtaining loans in case of any urgent requirement of funds.
Different types of whole life insurance plans
Almost every life insurer in India offers whole life plans as part of their product portfolio. However, minor variations exist within plans on mainly the following parameters:
The benefits of whole life plans are manifold:
Who are these policies suitable for?
The possible downsides
Whole Life insurance policies are one of many options you can consider to protect your family from life’s uncertainties. Before you buy a plan, however, take this quiz to determine how well prepared you are:
Have you ever wondered why you are asked to pay lesser premium than your friend or family member? To end the confusion, we have prepared a list of factors that affect how life insurance premium is calculated.
Awareness is the first step towards making effective decisions. Appreciating all the nuances of a powerful financial product like a ULIP will help you to decide the perfect plan for you.
The scope of an insurance policy is sometimes not sufficient to ensure your family’s financial security. However, you can fortify your insurance plan by buying an additional cover for extraordinary circumstances. These add-ons are called riders.
Loan against insurance policies is a good option in case funds are required in an emergency situation and can be a better alternative to a personal loan or a credit card loan or asking friends/relatives for financial help. But are they always a good idea?