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How To Secure Your Future With Whole Life Insurance?

dateKnowledge Centre Team dateFebruary 25, 2021 views343 Views
How To Secure Your Future With Whole Life Insurance?

A whole life insurance plan is a type of permanent life insurance plan. It means that the policyholder will be covered for their entire life provided the premiums are paid on time. Whole life insurance is different from term life insurance, which covers you for a period ranging between 10 to 30 years.

Moreover, the whole life insurance is the most frequently purchased permanent life insurance policy, according to the Insurance Information Institute (III). The maturity age for a whole life insurance policy is 100 years, and you can withdraw the term policy or borrow against it anytime. The policy will become matured endowment if the policyholder lives past the maturity age.

How does a whole life insurance work?

Whole life insurance policies cover you for your entire lifetime, and in case if you pass, the policy beneficiaries must file a claim with the insurer. The insurer will then review the circumstances of your passing and will grant the payout (also called the face value or death benefit of the policy) as long as everything is in order.

A whole life insurance policy is different from other types of life insurance policies. You need to understand how it works to decide whether it is a fit for you or not. A whole life insurance plan can be purchased through different payment plans, including a one-off sum, a monthly plan, and a yearly plan.

If you opt for a unit-linked whole life policy, then the payment made by you is not only directed towards the purchase of your insurance plan for payment of the sum assured, but a reminder of the amount is invested in an investment fund. You can also regularly review the policy to analyze whether the value of the policy is equal to the cost of life assurance it provides.

In case the remaining amount which is invested in an investment fund is not performing well enough to cover the cost of benefits, the insurer might suggest you either increase your regular contribution or reduce the amount of sum assured. Also, some whole life insurance policies give you the option to obtain cover against a specific disability or illness.

You also need to inform your family members about those who are all the beneficiaries of your life insurance policy because if they don't know that they are the beneficiaries, they might not be able to claim the assured sum should you pass.

Key elements of a whole life insurance

Every whole life insurance policy contains few key elements:

Death benefit

The death benefit is also known as the face value of the policy, which refers to the payout received by the beneficiaries upon your passing. Death benefits are exempted from taxes if you are below state and federal estate exemption levels, which is applicable for most households. Whole life insurances are usually expensive compared to other best term insurance plans, but the death benefit is proportionate to the cost.

You might also find policies, such as final expense whole life insurance, which comes with a death benefit of a few thousand rupees. These policies are less expensive as they offer a low face value and are designed to cover end-of-life costs.

Premium

It is the cost of the policy and can be paid monthly, bi-annually, or annually, depending on your insurer. Premiums are usually paid for the life of the policy. Nevertheless, you can opt for paying higher premiums for a shortened period, such as 20 years, to make sure that your policy does not lapse later.

It is the best term plan payment choice if you currently have high incomes and can cover costs to lock-in coverage for your family. If you can afford it, whole life insurance is the easiest way to minimize your family's financial risk profile.

Cash value

Like other permanent life insurance plans, whole life insurance plans accrue a cash value over time. It is the amount that you will get if you surrender the policy to the insurer. It will not be added to the face value of the policy that is received by the beneficiaries.

The cash value grows tax-free over time and guarantees growth at a significant rate in the case of whole life insurance policies. It is the reason why life insurance policies are frequently referred to as an investment vehicle.

The cash value can be used to:

  • Pay premiums
  • Purchase additional coverage
  • Withdraw (in some cases)
  • Provide a tax-free loan

If you borrow against your whole life insurance's cash value, then the loan value will be deducted from your policy's death benefit.

Type of whole life insurance policy

You can avail different types of whole life insurance policies that are available in the market. They are designed to cater to different types of requirements. Let us look into the details to get a clear understanding.

  • Non-participating whole life insurance

    Non-participating whole life insurance comes with a level premium and face amount throughout your entire life. The advantages of this policy are its relatively low premium payments and fixed costs. However, it does not pay you any dividends.

  • Participating whole life insurance

    The most attractive feature of a participating whole life insurance policy is that it pays dividends. Payment of dividends indicates that excess earnings accumulated by the company through savings from favorable mortality of the organization, expenses, and investments.

  • Level premium whole life

    It is one of the most commonly bought whole life insurance. The premiums will be calculated based on the entire duration of the policy holder's life (up to age 95 or 100), and the policyholder should pay an equal premium amount every month for their entire life.

    The advantage of this whole life insurance policy is that it gives you the stability and convenience in knowing how much money is owed on the premium each month. Also, the premiums are standardized and will never increase.

  • Limited payment whole life

    This is a perfect policy for those who do not wish to pay monthly premiums for the rest of their lives. It is a good choice because with this whole life insurance policy; you can opt for paying the premiums in a much shorter time frame, like in 10 or 20 years. This gives you an assurance that the policy is paid off and will not be voided. Nevertheless, one downside is that the premium amounts that you need to pay will be higher than level premium plans because of the reduced timeframe.

  • Single premium whole life

    In this whole life insurance plan, you need to pay the full amount of the policy premium in one large payment. This type of insurance policy is often used as an investment, as the buyers need to have a huge amount of cash in hand to make the payment.

    The advantage with this whole life insurance policy is that the policy is immediately paid and will have a substantial cash value that can be left to grow tax-deferred or can be borrowed against. The downside of this policy is that you might need to pay a significant fee if you surrender the policy during the first few years.

  • Whole life economic

    The whole life economic insurance policy has dividends that are used to buy other term life insurance. The advantage of this policy is that you will receive additional face value as time goes by. The drawback is if the insurer's company investments do not perform well, then the face value of the policy may shrink over time.

Financial benefits of whole life insurance policies

A whole life insurance plan comes with certain financial benefits, such as:

  • Whole life insurance protection

    Get insured for lifetime with the insurance cover that will also cover the expenses of or when critical illnesses are diagnosed.

  • Cash value growth

    The cash value that your whole life insurance policy accumulates will not be subjected to stock market volatility. Irrespective of the stock market performance, your cash value will grow at a fixed rate. With time, your policy generates cash value that will not be subjected to stock market declines.

  • Additional Income

    Under IRC Section 1035, your whole life insurance policy can be exchanged with tax penalties for an annuity being absent. It provides you with additional income for life. Make sure that you consult a tax professional or a qualified financial advisor to assess your specific scenario.

  • Dividends

    Dividends are the money paid to you from the insurer's profits. Although the guarantee of you receiving the dividends being absent, they will be paid as cash, which will be used to reduce the premium payment amount or will be accumulated and used to attract the interest at a significant rate if they are to be paid.

Canara HSBC Oriental Bank Of Commerce Life Insurance offers several whole life insurance policies and some of the best term plans. These keep you and your family financially protected for years to come. Choose a suitable plan for you today and make your future a secured one!

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Frequently Asked Questions (FAQs) Related to Life Insurance Policies

The premium is one of the most important factors to consider before buying a life insurance policy. Many people buy a life insurance policy with a high sum assured but are unable to process the premiums for the entire premium payment tenure. You can get a better idea of the premium outgo with the premium calculator available in the 'Tools and Calculator' section of www.canarahsbclife.com.

Life insurance plans come with several riders which increase the efficiency of the policy for the buyer. For instance, if you have a history of terminal illness in your family it would be advisable to opt for terminal illness rider with your term insurance plan. Riders or add-ons help in customising the standard policy benefits for the requirement of different families. The iSelect term insurance plan comes with a built-in cover for terminal illness, and option for protection against accidental death or disability. You can also opt to cover your spouse's life under the same policy by paying an additional premium.

Life insurance companies calculate the premiums based on several factors such as age, gender and occupation.

Age: It is one of the biggest factors that influence life insurance premiums. Premiums tend to be low when the life insured is younger as the chance of contracting diseases is low. Young people also opt for the best life insurance policies with longer tenures and pay premiums for a longer duration, which makes the policy cheaper for young people.

Gender: The insurance premium for women is generally lower when it comes to life insurance plans. Women live longer and pose a lesser risk of a claim leading to lower premiums for them.

Lifestyle habits: The premiums for people who smoke or drink is always higher due to higher health risks.

Policy term: Policy terms are also taken into consideration by insurers while deciding the premium amount. Life insurance policies with longer tenure are cheaper as compared to short-duration policies.

Mode of purchase: The platform that you use to buy the best life insurance policy also determines how much you will have to pay for the plan. People who buy life insurance policies online have to pay lower premiums as compared to offline policies.

Occupation: The nature of your work is an important factor that influences the premium amount. Certain occupations like shipping and mining are considered more dangerous as compared to jobs in services industries. The insurance premium rises with the risk profile.

Processing life insurance claim is a transparent and smooth process with Canara HSBC Oriental Bank of Commerce Life Insurance.

In case of the death of the life insured, the nominee will have to intimate the company by filling a Death Claim Form and sending it to the nearest branch office.

Once the form is received, the claim is registered by the insurer.

After the registration of the claim, the company will send the claims pack along with the related forms such as physician’s statement form and employer certificate that need to be filled.

Along with the duly filled forms a few documents such as original [policy document, death certificate, copy of bank passbook, hospital or treatment records, photo identification and address proof have to be provided.

The claim is processed on the submission of relevant documents. Once the documents are verified, the claim amount is released post all due diligence.

Household expenses rise with age. The cost of children's education increases along with other lifestyle expenses. The iSelect term plan offers an option to increase the cover according to the life stage. If opted, the insurance cover increases by 25% at every 5-year terminal till the 20th policy year.

Even though a life insurance policy is bought to protect your family in your absence, there are chances of the claim being rejected due to several factors.

False information: If the policyholder provides false information or conceals important information while buying the life insurance policy, the insurer has the right to reject the claim after his/her death.

Type of death: Deaths due to suicide in first policy year, intoxication or pre-existing disease is not covered under life insurance plan.

Premium payment: The payment of premiums on time is of utmost important to avail the benefits of life insurance. Life insurance policy may lapse on the failure to pay the premiums

Nominee details: A life insurance company can put the claim on hold if the nominee details have not been filled or not been updated by the policyholder.

Suicide: If the life insured commits suicide within 12 months of buying the life insurance policy, the insurance companies generally pay 80% of the total premiums paid.

Buying the best life insurance plan online is not only safe but a better option. Online life insurance policies have lower premiums and the individual is not required to visit the insurer's branch or a bank. The best life insurance policies online insurance offer higher benefits. Customers should, however, buy online life insurance policies only from credible insurers and should check for SSL certificate on the website to ensure that the website is legitimate.

The cost of life insurance policies varies depending on factors like age, gender and occupation. The average cost of life insurance plans, especially term plans, is very low compared to the amount of coverage offered.

An individual is allowed to have multiple life insurance policies. People opt for more than one life insurance policy to increase the cover or avoid claim rejection. In case of multiple life insurance policies, even if the claim is rejected by one insurer, the beneficiaries may receive the benefit from a different insurer.

Life insurance policies are of different types. In case of unit-linked or endowment policies the policyholder receives the maturity benefit at the end of the policy term. However, in the case of term insurance plans, there are no maturity benefits. The death benefit is only paid out after the death of the life insured.

When you buy a life insurance policy, the insurance company asks for the nominee details. Only the person named as the nominee in the life insurance plan can cash out in case of death of life insured.

A life insurance policy is generally taken for a specified period. After the policy duration of a term plan gets over, the policy simply terminates and ceases to exist. However, in case of unit-linked plans or endowment, you can use the policy as a tool for retirement planning and the accumulated corpus is used by the insurer to pay you monthly amounts for your entire life.

If a policyholder purchases a term plan for 25 years and dies during the policy term, the beneficiary receives the death benefit. In case of iSelect term plan, the policy provides four payment options to the beneficiaries. If the regular payment option is chosen, the policy works as a source of regular income.

It is a popular misconception that life insurance plans are only for accidental deaths. A term life insurance plan like iSelect Star Term Plan also covers terminal disease along with death. A terminal illness cover is important as health insurance pays only for the cost of treatment and hospitalization, but a terminal illness cover pays you a lump-sum amount which takes care of other expenses. On the other hand, unit-linked policies such as Invest 4G cover death and also provide decent returns for other financial goals such as buying a house of child's education.

It is ideal to buy a life insurance plan in your early 20s because it is the time when people have just started with their professional life and so there are lesser responsibilities and financial liabilities to take care of. Also, if you buy the best life insurance plan at this age, you will be paying relatively lower insurance premiums since it’s a due fact that mortality rate in case of young people is low. And that is why life insurance companies offer lesser premium rates to younger people as they think that they are most likely to be fit and healthier with less chances of filing a claim in future.

Once you have cancelled your life insurance policy, you will instantly lose your life insurance cover. Afterwards, your insurance company will get in touch with you and ask for valid reasons regarding the cancellation of your policy. In case you cancel your life insurance policy within the grace period, i.e. 15 to 30 days, depending on your insurer, then insurance company will reimburse the premium amount paid by you. But, no refunds will be paid to you if the policy is cancelled after the grace period.

Yes, you can take life insurance under Married Women’s Property (MWP) Act, 1984 only if you are a married man and a resident of India. Buying a life insurance plan under MWP Act would be helpful in saving your family’s financial well-being when you are not around. As per this policy, only wife and children would be eligible to receive the death benefits. You can also buy a policy if you are a widower or a divorcee. However, in that case, you can give your child’s name as your beneficiary. It is very simple to buy a life plan under MWP Act. All you need to do is to fill up an MWP addendum while purchasing an insurance policy.

Yes, there are different payment options for you to pay premiums. Here’re some of them

    1. Regular premium payment option – This premium payment option allows you to pay premiums equal to your policy term either monthly, quarterly, half yearly or annually.

    2. Single payment option – Through this premium payment option, you can pay the lump-sum amount in one single payment.

    3. Limited payment option -In this premium payment option, you can pay premiums for a specific period of time less than policy term either monthly, quarterly, half yearly or annually, but benefits of insurance can be enjoyed for a longer period of time.

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