A Whole Life Insurance Plan, as the name suggests, covers you for your entire life. The main purpose of this policy is to help you live a worry-free life while being able to create a legacy and a financial cushion for your family. It pays the cover amount to your nominee if you pass away during the policy period. If you survive the policy term, you’re entitled to receive the maturity amount. Some plans even give you survival benefits in the form of periodic payments at the end of the premium payment period.
Investing in a Whole Life Plan is undoubtedly a commitment that goes on for decades. You rely on it for your family’s financial safety till the very end. So, to ensure that this plan is right for you, it’s important that you know about it thoroughly - especially the benefits it offers.
Let’s have a look!
Benefits Offered By A Whole Life Plan
Coverage For A Lifetime
The standout benefit of a Whole Life Plan is that it covers you for your entire life (till you are 99 to 100 years old), unlike other policies that have a limited span. The probability that you’ll survive that long is very less, so a whole life plan is a great way to secure your family’s future. It will ensure that they live a comfortable life even when you’re no longer around.
If you unexpectedly pass away during the policy term, your nominee receives a death benefit, i.e., the cover amount you’ve chosen. Your family can use this money for their everyday expenses (groceries, utilities, school fees, etc.) and long-term financial goals (higher education, paying off loans, etc.) without having to compromise on their lifestyle.
Example: Raghav is a 40-year-old married male. He wants to accumulate funds for his daughter’s higher education and to support his spouse in his absence.
He buys a whole life insurance policy with a cover amount of Rs 50 lakhs. The annual premium amounts to Rs 1,50,000, to be paid over 20 years.
Sadly, Raghav passes away in the 10th year during the policy period. In this case, his nominee will receive the entire Rs. 50 lakhs as the death benefit. This amount can help his spouse take care of the family’s financial needs and cover their daughter’s education expenses.
Whole Life Insurance pays you a guaranteed maturity benefit if you survive the policy period. So, when the policy matures, you receive the policy sum assured. You can choose whether to receive the maturity benefit as one lump-sum payment or as regular instalments at specific intervals. The lump sum can help your family cover big expenses like settling loans, buying a house etc. On the other hand, the regular instalments can help you and your family meet small expenses like monthly EMIs, utility bills, post-retirement needs, etc.
Some Whole Life Plans also give you periodic payouts as an additional survival benefit. You receive these payouts when the premium payment period gets over.The survival benefit may differ with different insurers. It may either be a percentage of the sum assured or a separate amount determined by the insurer.
Serve As Loan Collateral
You may want a loan to buy a new vehicle, build your dream home, fund your child’s higher education, etc. Instead of borrowing money against assets like gold or property, it is a wise decision to take a loan against your Whole Life Plan.
Your insurance plan can be used as collateral if it has been active for at least 3 consecutive years. This eligibility period varies across different products.
Note: Not all whole life insurance policies are eligible to serve as collateral. For instance, it is not possible to avail a loan against a term whole life insurance policy.
Some Whole Life Plans generate a cash value that you can withdraw - as you go on paying the premiums. The more the premiums you pay, the more the cash value.
This cash value can be used -
Example: Say your father requires urgent medical treatment, so you need to raise money as soon as possible. In such a case, you can contact your insurer and ask how much money you can withdraw from the accrued cash value to pay off your father’s medical bills.
Whole Life Plans also offer tax benefits under various sections of the Income Tax Act, 1961.
Annual premiums are exempted from taxation under Section 80C of the Income Tax Act, 1961 - up to a limit of Rs. 1.5 lakhs.
The payouts you or your nominee will receive are also exempted from taxation under Section 10(10D) of the Income Tax Act, 1961.
Whole life insurance offers a cover for practically your entire lifetime. If something unfortunate happens to you, your family will receive the sum assured. And, if you survive till 99 or 100 years of age, the sum assured is paid as a maturity benefit. So, if you want to leave a financial legacy for your family, whole life insurance is an excellent option. Before you go ahead, make sure the policy aligns with your and your family’s requirements.