Whole Life Insurance

A whole life insurance policy can help you protect your family in case of an unfortunate event, while also growing your funds. With a death benefit, as well as maturity and life benefits, the plan is a comprehensive solution for safeguarding your finances.

Whole Life Insurance Definition

A whole life insurance is a comprehensive life insurance policy that offers the benefits of life cover as well as investment to policyholders. As a result, it can be used to protect one’s family in case of an unfortunate event, while also being used to build a corpus for retirement.

The life cover, referred to as sum assured, is a set amount that is paid to the policyholder in case of an unfortunate demise during the coverage period. Like other life insurance policies, a whole life insurance policy is designed to offer financial security to one’s family. To understand how whole life insurance policies offer a reliable safety net, let’s take a look at the example below.

Aarushi is 30 years old and has decided to purchase a whole life insurance policy. The sum assured offered to her is 40 Lakhs. Aarushi has purchased a Limited Premium Whole Life Insurance Policy (which is a type of whole life insurance policy further explained below). As a result, she must pay her premiums for 15 years (as per the policy’s predefined premium payment period), and can enjoy coverage for the rest of her life.

How does whole life insurance work?

When a policyholder purchases a whole life insurance policy, he or she pays a premium every month or year (based on preference). A portion of the premium paid goes towards the sum assured, while the rest is invested. Based on the performance of the fund, the profit is given back to the policyholder if they either live until the maturity period, or choose to withdraw the amount. Some policies may provide a dividend to the investor and this can help with maintaining financial stability during retirement.

The specific workings of a whole insurance policy can vary based on the type of policy chosen, as explained below.

Types of whole life insurance policies

There are six main types of whole life insurance policies:

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Non-Participating Whole Life Insurance:
This is the most basic type of whole life insurance policy, with low-cost premiums, and a sum assured feature. It is important to understand that while this policy does offer death benefits, it does not offer a dividend since there is no investment component.
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Participating Whole Life Insurance:
This type of whole life insurance policy is the polar opposite of a non-participating whole life insurance policy. In this policy, a part of the premium is invested by the company, and the profits earned are distributed to policyholders in the form of bonuses. The payment mode can vary from policy to policy - in some cases, the bonus is paid as a lump sum, while in others, it can offset the premiums that the policyholder is yet to pay.
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Level Premium Whole Life Insurance:
This type of policy requires policyholders to pay the premium for the duration of their lives. There is a set premium amount that does not change.
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Limited Payment Whole Life Insurance:
As the name indicates, in this type of policy, the premiums are paid for a limited period, as determined in the policy details. The policyholder will still be insured for the duration of his or her life. However, it is important to note that this policy comes with a higher premium since the premium period is lower than level premium policies.
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Single Premium:
In this policy, the policyholder pays a single premium that is then invested by the company. This invested amount is then paid to the policyholder’s family in the event of a demise.
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Indeterminate Premium:
In this whole life policy, there is a maximum guaranteed¹ amount along with a lower premium. The lower premium is applicable for a set period of time, after which the insurance provider increases the amount.

How to pick the right whole life insurance?

When picking a whole life insurance policy, it is important to determine one’s future requirements along with premium payment capacities. Whole life insurance policies vary based on the premium payment options, and these can have higher or lower premiums based on the payment period, bonuses, age of the policyholder and other factors.

Policyholders who are the sole breadwinners can benefit from participating whole life insurance due to features such as dividend payments. On the other hand, policyholders with ample investments can choose a non-participating whole life insurance policy for security.

Comparing whole life insurance and term insurance

Criteria

Term Insurance

Whole Life Insurance

Definition

A term insurance policy (also known as pure life insurance) offers death benefits if the policyholder passes away during a specific period.

A whole life insurance policy covers the policyholder for the duration of their life, and offers death benefits as well as bonuses.

Term Period

These policies have a fixed term period, which means that once the period is over, the policy cover is no longer valid. To extend the validity, policyholders need to renew the policy.

These policies have a 99 year term period. They do not require renewals.

Premium amounts

The premiums for term insurance are lower. Additionally, the premiums are dynamic in nature and may change at the time of policy renewal.

The premiums for whole life insurance are higher, especially if the policyholder chooses a Limited Payment policy. Additionally, the premiums are fixed in nature.

Investments

There is no investment component in such policies.

A portion of the premium is invested by the company. The profits are then distributed amongst the policyholders as bonuses.

Payouts

The sum assured is paid in the event of the demise of a policyholder.

The sum assured is paid in the event of the demise of a policyholder. Additionally, a lump sum premium payout is given to the policyholder if they survive the term period.

Benefits of whole life insurance
A whole life insurance policy offers the following benefits:
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Large coverage period:
A whole life insurance policy offers cover until the policyholder reaches 100 years of age.
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Financial security:
In the event of the demise of the policyholder, the family can still have financial security in the form of the sum assured and bonuses.
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Maturity benefits:
At the time of maturity, policyholders can either enjoy regular dividends or receive a lump sum payout, based on the type of policy chosen.
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Tax benefits:
Under Section 80C of the Income Tax Act, the policyholder can enjoy tax benefits² on the premiums paid. Additionally, there are tax benefits² applicable on the maturity amount as well, under Section 10(10D).
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Loan facilities:
Policyholders can take loans against the policy, should they require funds to fulfill life goals.
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Partial/full withdrawals:
In the event of an emergency, policyholders can make partial or full withdrawals and use the cash as they see fit.

Riders for whole life insurance

As is the case with many types of life insurance policies, whole life insurance can also be enhanced with the help of riders3. Riders are basically add-ons that provide additional coverage to the policyholder in exchange for added premium amounts. The riders3 applicable for whole life insurance include:

Exclusions under whole life insurance

While whole life insurance offers comprehensive coverage, there are certain exclusions that policyholders must keep in mind. These exclusions refer to situations that do not warrant a payout, and are deaths caused by:

  • notcovered Suicide
  • notcovered Involvement in illegal activities
  • notcovered Alcohol or drug use
  • notcovered Terrorism
  • notcovered Lifestyle causes
  • notcovered Life-threatening sports, like cliff jumping

Documents needed to purchase a whole life insurance policy

To purchase a whole life insurance policy, you must provide the following documents:

  • iconbullet Identity proof (such as passport, Aadhar Card, Driver’s License)
  • iconbullet PAN Card
  • iconbullet Two passport size photographs
  • iconbullet Address proof (such as passport, Aadhar Card, Driver’s License)
  • iconbullet Age proof (such as class 10th marksheet, class 12th marksheet, passport, Aadhar Card)

How to buy a whole life insurance policy?

To buy a whole life insurance policy online, policyholders can:

  1. Visit the website of the desired insurance provider
  2. Sign-up/Log-in to create/access their account
  3. Select the desired policy. You can either sign the policy online or print the policy, sign it, and then scan it to save it on your computer system.
  4. Submit the self-attested KYC documents along with a signed copy of the policy
  5. Pay the first premium through netbanking, UPI, NEFT or RTGS payment modes, whichever is preferred.
  6. Save the policy document received via email onto your desktop for future use.

To buy a whole life insurance policy offline, policyholders can:

  1. Visit the office of the desired insurance provider or call an insurance agent from the company and schedule a meeting
  2. Read all policy documents carefully and sign the policy
  3. Submit the KYC documents along with premium amount
  4. Keep the policy document in a safe area your family can always access

Whole life insurance claims process

In order to a file a claim for your policy, you must:

  1. Contact your insurance provider
  2. Register your claim by visiting the insurance provider’s office/online/via email/via telephone
  3. Accurately fill the claim form
  4. Submit the relevant documents (death certificate, claim form, identity proof, address proof, original policy document, and any other document specified by your insurance provider)
  5. Wait for the verification process to be completed

Once the verification process is over, the sum assured will be given to the nominee. It is important to note that as per IRDAI guidelines, insurance providers must release the payment within 30 days of the claim being filed.

Frequently Asked Questions on Whole Life Insurance

Certain whole life insurance policies offer a Guaranteed1 Surrender Value that is paid to the policyholder if they surrender the policy. However, most policies require a premium payment of at least 2 years for this to come into effect.
As whole life insurance policies have a certain monetary value in the market, policyholders who require funds for life goals can get a loan against the policy. The loan amount can vary from bank to bank, as well as the overall value of the policy.
No, it is not compulsory to purchase riders3 for a whole life insurance plan. However, it is always beneficial to have additional cover.
The following riders³ are applicable for whole life insurance plans:
  • Accidental death benefit
  • Premium payment waiver
  • Permanent/partial disability benefits
  • Income benefits
  • Critical Illness Cover
A term insurance provides cover for a specific time period, known as the policy term. A whole life insurance policy provides cover for the entirety of the policyholder’s life.
Yes, many insurance providers allow policyholders to turn their term plans into a whole life plan. You must speak to your policy provider to know more.
There are a few policies that have a minimum age criteria of 30 days. Such whole life insurance policies can be purchased for your child.
You should buy a whole life insurance policy if:
  1. You are the sole breadwinner in your family and have many dependents
  2. You want to ensure financial security in your future in the form of dividends or a lump sum amount
  3. You want to secure your retirement period and live independently
  4. You want to save on taxes
  5. You can pay higher premiums.
  1. The minimum entry age can be as low as 30 days old (this can depend on the policy under evaluation)
  2. The maximum entry age is 60 years old, with a premium payment period of 10 years.
  3. The policy can be purchased by Citizens of India.
The following taxability rules apply:
  1. Policyholders can enjoy tax benefits2 on premiums under Section 80C of the Income Tax Act.
  2. Further tax benefits² are applicable on the maturity amount as well, under Section 10(10D).
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  • Disclaimer

    ¹ Provided all due premiums are paid.
    ² Tax benefits are subject to changes in tax laws. Kindly consult your financial advisor for more details.
    ³ There are exclusions attached to the rider. Please refer to the brochure.
    ADV/7/22-23/807