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
Concept of Term Rider with a Whole Life Plan
In a whole life plan you can cut down the premium payments by discontinuing contribution that goes towards the fund as investment and only continue with the premium component. For this you need to choose a Whole Life Plan with Term Rider in which the Term Rider premium component cannot be withdrawn and the other portion of the premium can be withdrawn with accrued bonus, if any. This way you can maintain regular savings and sum assured at the same time since you can withdraw the investment part but still contribute a reduced premium toward the sum assured.
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:
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