How Is Whole Life Insurance As An Investment?

by SMCIB on Tuesday, 02 May 2023

How Is Whole Life Insurance As An Investment?

Life is like walking on thin ice - where you can feel the stability of the solid ground beneath you, but the fact is that the surface could crumble at any moment. Thus, it is essential to have a safety net in place, so your family is secure even in tough times. With the right financial plan, you can ensure that they have the support to make it through the trials and tribulations of life. What if you had something that could guarantee your family's financial security for the rest of your life?

Yes - whole life insurance! With whole life insurance, you can trust that your family's financial security is guaranteed for life. It is like a trusty compass that will lead your family safely through life's journey - ensuring they never get lost.

Having said that, how is whole life insurance as an investment? Let’s find out.

First, What Is Whole Life Insurance?

In essence, Whole Life Insurance is a type of life insurance that covers you for your entire life - up to 99/100 years. It is also known as a permanent life insurance policy. The purpose of a whole life insurance policy is to provide lifelong financial security for your loved ones, helping to ensure their well-being long after you are gone.

Here are the benefits offered by the policy -

  • Death Benefit
    In case you pass away during the policy period, it will pay your family the cover amount.

  • Maturity Benefit
    In case you survive the policy period (up to a particular age, say 99/100), it will pay you a maturity benefit.

  • Survival Benefit
    Some insurers may also pay you a certain amount as a survival benefit at the end of the premium-paying term, i.e., when you complete the premium payments under your policy.


How Is Whole Life Insurance As An Investment?

People often purchase Whole Life Insurance to leave their families with a comfortable financial life as a legacy, or as a tangible symbol of enduring love and commitment to them. You should consider whole life insurance if -

1️⃣ You Want To Leave Behind A Lasting Legacy For Your Family

Whole Life Insurance provides your family with financial stability and ensures that your legacy and values are passed on for generations; it is an invaluable gift of security, comfort, and peace of mind. When deciding to purchase such a policy, remember that the primary objective should be to secure a corpus for the family, prioritising safety and security over achieving inflation-proof returns on the investment. Emphasising this fact, it is important to note that the policy also provides an added benefit of tax exemption for the generated corpus.

Note: Maturity proceeds from life insurance policies that have an annual premium of over Rs. 5 Lakhs are taxable from 1st April 2023.

2️⃣ You Will Have Financial Dependents Beyond Retirement

In the event that you are the sole breadwinner of your household, your family members may rely on you financially for their livelihood and life goals. Such members are called financial dependents. A dependent can be your spouse, children, siblings, etc. If they will depend on you for a long time or even your entire life, it is your responsibility to ensure their financial security - even when you aren't around.

Such instances call for whole life insurance. It ensures your dependents will always be taken care of, providing them with the financial security they need and deserve  no matter what life throws at you.

Example: Lalit, 35, lives with his wife and 5-year-old physically challenged son. Both of them rely on him financially. He wants to accumulate enough funds to cover his son's medical bills as well as ensure that his wife is taken care of - should the worst happen. Lalit invests in a whole life insurance policy with a sum assured of Rs. 1 Crore, which covers him up to the age of 99. He needs to pay an annual premium of Rs 1,50,000 for a period of 30 years.

  • If he passes away during the policy period,
    His wife will receive a death benefit of Rs. 1 Crore. She can use this amount to cover her son's medical expenses as well as take care of her financial needs.

  • If he survives the policy period,
    He will receive a maturity benefit of Rs 1 crore. He can use this money for his family’s needs.


3️⃣ You Wish To Accrue A Cash Value

A cash value is a fund built from a major portion of the premiums you pay. Over time, this part of your policy earns interest, allowing it to increase in value. It acts as a supplemental income source to meet various financial goals, while still keeping the death benefit intact. The cash value can be withdrawn or borrowed against to help with unexpected expenses, making it a valuable asset.

Note: The cash value may differ from policy to policy, so you should review the policy wordings and consult your insurance company or financial advisor before investing.

Example: Ben has a whole life insurance policy with a sum assured of Rs 1 Crore. The policy has been active for 12 years and he has been making timely premium payments. He has accrued some cash value under the policy. His father needs an immediate kidney transplant. To cover his father's hospitalisation expenses, he contacts his insurer and withdraws money from his accumulated cash value.

4️⃣ You Are A High-Networth Individual

If you are a wealthy individual who has exhausted all other investment opportunities, you may look for ways to diversify your portfolio. In that case, you can take advantage of whole life insurance - a safe and guaranteed tax-exempt investment option. It can provide the perfect balance of protection and wealth accumulation.

Note: Maturity proceeds from life insurance policies that have an annual premium of over Rs. 5 Lakhs are taxable from 1st April 2023.

Wrapping up!

To ensure you're making the best decision with your whole life insurance policy, carefully consider your finances and long-term goals. It is an investment that requires dedication and planning, but its rewards will last for generations to come. Therefore, it is crucial to consider the implications of such a purchase and make sure that the policy is the right choice for you and your family.

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