Ch. 2: Why You Should Invest in Whole Life Insurance Policy?

Whole Life Insurance is a type of insurance policy that provides financial protection to dependent family members across the insured person’s entire lifetime. It provides both maturity and death benefits.

• Upon the death of the insured within the policy duration, a whole life insurance policy pays the cover amount to the nominee.
• If the insured survives till the policy matures, they are eligible to receive the cover amount, and this is what makes a whole life insurance policy different from other policy types.

Now, the question of the hour - why should you invest in a whole life insurance plan? Let’s have a look!

You should consider investing in a whole life insurance plan if -

In case you have financial dependents, whose lifestyle, life goals are dependent on your earnings, then you need to financially protect them with an insurance plan that provides adequate coverage in case of your sudden demise. A dependent may be your spouse, children, parents, or even siblings. If they are reliant on you for their financial needs for a long period of time or possibly your entire lifetime and beyond you need a cover that matches such a requirement. Whole life insurance is appropriate for such needs.

For instance, if you have a child with special needs, your sudden demise would put your family in emotional distress and would create a financial burden. An adequate whole life insurance policy will ensure financial support to the child to take care of short term expenses like daily expenses, school fees, check-ups, and even long term goals like higher education, marriage expenses etc.

Many individuals look at Whole Life Insurance as a device to offer a legacy to their families. It is a form of leaving behind something as an expression of love.

Remember, the goal when taking such policies is largely focused on ensuring a safe corpus for the family - with more focus on safety than efficient returns that beat the current rate of inflation.

The corpus generated out of this policy will be exempted from tax. Under Section 10 (10D) of the Income Tax Act, insurance payouts of most insurance plans are exempted from tax.

For instance, Kunal is 50 years old and has two kids, aged 18 and 20. Kunal has already invested heavily in real estate and equity. He now wants to accumulate a secure fund (that’s also exempted from tax) purely to leave behind a legacy so that the both of them can live a comfortable life. In such a situation a whole life policy may be a good option to discuss with your financial advisor.

If you are a High-net-worth individual who has already maxed out on other investment avenues and are looking at a safe avenue to invest money while being exempted from taxes - you may evaluate Whole Life cover as an option with your financial advisor.

Any individual who wants to allocate his money to a safe investment option and minimise taxes may find this to be appealing. Accordingly, life insurance premiums and returns are entitled to tax benefits, delivering asset security. Both premiums and payouts are exempted from taxation under the Income Tax Act, 1961.

• Premiums are exempted from tax under Section 80C of the Act, up to 1.5 lakhs
• Payouts made to the nominee/policyholder are exempted from tax under Section 10(10D) of the Act.

A cash value, basically, is a fund that is built by a substantial portion of your premiums. It can be accessed by you without hurting the death benefit and acts as a secondary source of income for various financial needs. It is a portion of the policy that earns interest and will be available to you to withdraw. For instance, you can withdraw money for expenses after retirement, borrow as a loan, or even pay policy premiums with the cash value.

The cash value may differ from policy to policy, so it is advisable that you go through the policy wordings and check with your insurance company or financial advisor before investing in a plan.

For example -

Mohit, a 37-year-old male, bought a whole life policy in 2014, which has accrued a cash value over the years and will continue doing so. He has large hospital bills to settle due for his father’s knee surgery, including post-surgery equipment and physiotherapy costs. He can withdraw the accumulated cash value to pay off the medical bills.

So, if you have financial dependents or want to accomplish your long-term goals, you should opt for Whole Life Insurance. Your timely decision shall definitely show a positive outcome in the long run. The earlier you make this decision, the more helpful it will be to you!