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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) for Term Insurance

This being a term plan doesn't offer any payout after maturity or expiration date.

Each insurance company has its own term insurance premium calculator. If you want to check out the premium quote, go for the iSelect Star term plan calculator. It gives a premium amount based on your age, gender, habits, education, and annual income.

You can purchase an iSelect Star term plan anytime between 18 to 70 years of age.

It depends on your needs. For example, if you want to cover a child's education or wedding expenses, you have to include them in your coverage. Your premium will be calculated accordingly.

If your key purpose is to give your Family financial protection, go for the term insurance plan. And if you want some savings, in the end, go for a traditional life insurance plan.

Go for at least 12 times cover than your annual income. Or you can go as far as 20 times coverage as per your needs.

The right time is when you don't have anything to keep your Family safe from financial storms, and they rely on you for financial needs.

If you are unable to make the payment or suffering from a terminal illness, a term plan pays a part of the sum insured to treat your disease.

Term insurance riders are attachment or endorsements made, while taking the term insurance policy, as a supplementary coverage to policyholders. Apart from the core death benefit, term insurance riders offer below-given additional benefits:

  • Accidental Death Rider When a person suffers from a terminal illness, his/her family ends up spending a significant amount in treatment and medical expenses. Accelerated death rider pays a part of the sum insured in advance to cover such costs and save the family from running out of cash.
  • Accidental Disability Rider If the policyholder can't pay the premium because of an accident or permanent disability, a sudden disability this pays the premium on behalf of the policyholder till completion of policy term or for a defined duration.
  • Critical Illness Rider If the insured person gets a heart attack, cancer, or any other critical illness, this rider pays a lump sum on valid diagnosis.
  • Premium Waiver Rider If the policyholder is unable to make payments due to income loss or disability, a premium waiver rider waives off all future premium payments. And the term policy remains active until the expiration date.
  • Income Rider: The rider ensures that your family receives regular income + sum insured in case of unfortunate demise of life insured.

Anyone can go for life insurance as it offers some savings after the maturity date, but it doesn't cover the protection of your family . The best term insurance plan is solely designed for taking care of loved ones if something happens to you. Term plans act as a shield between your family and sudden financial fall. They make sure that your family lives a healthy life even after you. With a little amount paid per year, you can be worry-free from the family's financial conditions.

Questions that you need to ask while buying Term Insurance?

  1. 1. Amount of premium you have to pay based on your age, habits, education, and monthly income
  2. 2. The total number of benefits covered in the term plan. Do they include benefits that you care about the most?
  3. 3. How to save money on tax if you pay for the term plan?
  4. 4. Do they offer regular income options?
  5. 5. Can you change the coverage and premium in the future?
  6. 6. Does the claim consider valid if death occurs outside India?
  7. 7. Which kind of death is not covered by insurance?
  8. 8. Can NRIs take term insurance? If yes, what are the conditions?
  9. 9. Does the term insurance plan have a cash value if you decide to cancel the policy?
  10. 10. Under what circumstances can a term insurance plan be cancelled?
  11. 11. Can I pay the premiums online or make electronic payments?
  12. 12. What will happen to the term plan if the life assured starts smoking after purchasing the policy?
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