Ch. 1: What is Whole Life Insurance Policy: All You Need To Know

A Whole Life Insurance policy, as the name suggests, is a type of life insurance policy that covers you for your whole life.

The policy will pay the cover amount, in the event of insured’s death to the nominee. It may also pay the maturity amount when the policyholder hits a particular age.

The basic goal of a Whole Life Insurance policy is to ensure life-long financial protection to family members. Given this is a guaranteed payout, whole Life Insurance is also bought as an expression, a parting gift or legacy that people want to leave behind for their family, to ensure their families live a comfortable financial life. It is also known as a permanent life insurance policy.

Whole life insurance plans provide two types of benefits, namely -

• Maturity and survival benefit to the policyholder
• Death benefit to the nominee

Let’s understand these concepts in detail -

Survival Benefit - Some insurance providers pay the policyholder a survival benefit at the end of the premium paying term. This may be a percentage of the cover amount, a separate sum as determined by the insurer, or even the bonuses if accrued. This differs from insurer to insurer.

For instance, say Mr. Bhatt, 30 years old, buys a WL policy with a premium payment term for a policy for 10 years. At the age of 40, when the payment term ends, Mr. Bhatt may be paid a certain % of the coverage amount in the policy. Say the cover amount is Rs. 10 Lakhs, the survival benefit is say 3% - the policy will pay Rs. 30000 as a survival benefit.

Maturity Benefit - Upon maturity of the policy, the insured person will be paid the promised lump-sum amount together with the accrued bonuses, if any. This maturity age is usually 99 years in Whole Life policies.

Death Benefit -If the insured person dies during the tenure of the policy, the death benefit amount is paid to the nominee. The death benefit amount is the total sum assured of the policy and all the bonuses accrued, if any.

There are three conditions that need to be fulfilled to keep the cover active. The coverage will continue as long as -

• The insured person lives
• The premiums are paid on time
• The policy has not been surrendered (You can read about the surrender of a policy here)

It works in a very simple fashion.

• If all the premiums are paid on time and the insured person dies within the tenure of the policy, the family or the nominee will receive the death benefit.
• If the insured person survives the policy term, they receive a maturity benefit. This policy cover amount will be paid either in one shot, or a combination of a partial large amount and multiple installments of money over a certain period of time.

As mentioned earlier, many insurance companies also pay the policyholder a survival benefit, i.e., a fixed sum of money at the end of the premium payment period. This can be a lump sum or a periodic payment.

The maturity age of a whole life insurance policy is what makes it unique. Generally, the maximum maturity age for a whole life insurance policy is 99 or 100 years, but this may differ from product to product and insurance company to insurance company.

Both these plans are types of Life Insurance Plans but are significantly different. Let’s have a look at some basic differences -

Apart from these differences, the premium for a whole life insurance policy is much higher compared to a standard term life insurance policy as it provides coverage for a lifetime.

#Considering a 30-year-old male, 1,00,78,396/- cover, benefit to be paid out annually for 30 years, limited pay (15 years), Cover Upto 100 years, bonus to be utilised as cash value of paid-up additions (online premium), inclusive of GST.
*Considering a 30-year-old, non-smoker male, 1,00,00,000/- cover, lump-sum payout, limited pay (15 years), Cover Upto 75 years (online premium), inclusive of GST

Salman is a 42-year-old married male. He wants to accumulate funds to create a legacy for his 6-year-old daughter to help her with future expenses like education, marriage, etc and to support his spouse in his absence.

He chooses to purchase a whole life policy for the same with a 1.5 crore cover. He will have to pay fixed premiums regularly for a period of a limited number of years, say 20, and he will be covered for a lifetime.

The policy may have the following benefits -

• In the event of his death, the sum assured (Rs 1.5 crores) along with accrued bonuses (if any) will be paid out to his spouse and child along.
• If he survives the policy term, he will receive the sum assured (Rs 1.5 crores) along with accrued bonuses (if any) as a maturity benefit.
• He is also entitled to receive a survival benefit at the end of the 20 years of premium payment term. This may be a percentage of the sum assured or the bonuses that have accrued from his policy (if any). Say it is 3%, then Salman will receive Rs. 45000.

To conclude, Whole Life Insurance Plans are plans that can be helpful if you want a plan that will cover you for your lifetime or you want to leave behind a useful, tax-free legacy for your loved ones to ensure that they have a safe, stable, and secure future.