Is Whole Life Insurance Worth It?

by SMCIB on Wednesday, 05 April 2023

Is Whole Life Insurance Worth It?

Whole life insurance is a type of life insurance policy that covers your entire life (up to the age of 99-100). It is also known as a permanent life insurance policy. It provides a guaranteed level of financial protection for your family that lasts a lifetime. You can purchase it to leave behind a lasting legacy for your family, so they can lead a comfortable life even in your absence.

If you pass away during the policy period, the policy will pay the nominee the cover amount as the death benefit. And, if you survive the policy period, the insurer will give you the cover amount as the maturity benefit. Some insurers may also offer a survival benefit once you have paid all your premium i.e when the premium payment period gets over.

Whole life insurance is like planting a tree. Even after you are gone, its roots remain strong, providing long-term protection and financial security for your loved ones. It is more than just a financial backup; it gives you a sense of comfort knowing that they will be taken care of in the face of life's uncertainties.

What are the benefits of whole life insurance? Is it worth your time and money? Let's get answers to these questions!


Benefits Of Whole Life Insurance
Whole life insurance provides an array of benefits that make it a desirable investment avenue. Here are some -

1️⃣ Death Benefit
In the event you pass away while your whole life insurance policy is still active, your nominee will receive a death benefit, i.e., the sum assured. They can use this money for their financial goals and to live a financially comfortable life.

2️⃣ Lifelong Financial Protection and Security
As opposed to other types of insurance policies that expire after a certain period of time or provide coverage only for a fixed period of time, a whole life policy will cover you for the rest of your life. As it is less likely that you'll survive such a long period of time, a whole life plan is an excellent way to leave your family a financial legacy, a parting gift of sorts.

3️⃣ Serve As Collateral
You may wish to take out loans to fund any big expenses such as buying an apartment, car etc. A bank or lending party usually asks for collateral to lend you a loan.

Did you know you can borrow against your whole life insurance?

Yes, a whole life insurance policy can be used as collateral if it has been in force for three years continuously (the buffer period may vary across products). Therefore, instead of borrowing or taking a loan on your house, gold, or other property that you don’t want to liquidate, you can borrow against your whole life insurance policy.

Note: Not all whole life insurance policies offer this option.

4️⃣ Cash Value
When you continue to pay your premiums duly, some whole life insurance policies accumulate a cash value. This cash value can be used to pay your future premiums or borrow money against it. For instance, if you have a sudden medical emergency and are in need of funds, you can withdraw the accumulated cash value under your policy.

Note: The more premiums you pay, the higher your cash value will be.

5️⃣ Maturity Benefit
In the event that you survive the policy term, you will receive a guaranteed payout as a maturity benefit that is equal to the sum assured. Depending on your preferences, you can receive the maturity benefit either as a lump sum or as a regular stream of income at predetermined time intervals.

6️⃣ Survival Benefit  
Some whole life insurance policies also provide an additional survival benefit at the end of the premium payment term. It is usually paid in the form of periodic instalments. You can use this money for financial goals like buying a vehicle, your child’s education, etc.

7️⃣ Tax Benefits
Whole life insurance policies provide tax benefits under various sections of the Income Tax Act 1961.

  • You can claim deductions up to Rs. 1.5 lakh on the premiums paid under Section 80C of the Income Tax Act, 1961.
  • The insurance company's payout you or your nominee will receive is also wholly exempt from tax under Section 10(10D) of the Income Tax Act 1961.


So, Is Whole Life Insurance Worth It?
In order to determine whether whole life insurance is a worthwhile investment, you must consider your own financial situation, goals, and preferences. Whole life insurance is worth it if -

1️⃣ Your Dependents Need LifeLong Protection
If you are the sole breadwinner of your family, your family members may depend on your income for their livelihood and life goals. If they do, they are called financial dependents. A dependent can be anyone including your spouse, children, parents, or siblings. To ensure your dependents are taken care of in case something happens to you, it is important to consider purchasing an insurance policy that will provide them with the necessary financial security.

If you have financial dependents who will rely on you for financial support for a long time or even your entire life, you need a policy that covers this possibility. In such a case, whole life insurance would be a good option. It is a great way to ensure your dependents lead a comfortable life without any financial worries - no matter what the future holds.

Example: Fahad, 35, lives with his wife and 10-year-old daughter with special needs. Both are financially dependent on him. He wants to accumulate enough funds to cover his daughter’s medical expenses as well as take care of her needs even in case of an unfortunate incident. So, Fahad invests in a whole life insurance policy with a sum assured of Rs. 1 Crore in - that will cover him up to the age of 99 years. He needs to pay an annual premium of Rs 1,50,000 for a period of 35 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 daughter’s medical expenses as well as take care of her financial needs.


2️⃣ You Wish To Leave An Inheritance
Whole life insurance is often viewed as a way to leave behind a financial legacy for loved ones. It ensures that your legacy will be preserved and passed down for years to come, providing a lasting reminder of your love and care for your family. The primary focus of a whole life insurance policy is to ensure a safe corpus for the family, rather than efficient returns to beat inflation. And, the corpus generated by this policy is tax-exempted under Section 10 (10D) of the Income Tax Act of 1961.

3️⃣ You Wish To Build A Cash Value
A cash value is essentially a fund accumulated by a large portion of your premiums. It serves as a secondary source of income for various financial needs and can be accessed without affecting the sum assured. This is an interest-bearing portion of your policy that you can withdraw at any time.

This cash value grows over time and can be withdrawn when you need it, providing a valuable financial resource for any life event. It can be used for expenses after retirement, as a loan, or to pay any future premiums in advance. Io, it serves as an asset in case of financial emergencies, providing an additional layer of security and peace of mind.

Example: Ramesh has whole life insurance with a sum assured of Rs 1 Crore. His policy has been active for 10 consecutive years and has accumulated a cash value. His father requires immediate heart transplant surgery. So, he contacts the insurer and withdraws sufficient money from his accumulated cash value to meet his father's hospitalisation expenses.


Note: Depending on the policy, the cash value may differ. Before investing in a plan, it is best to read the policy wording and talk to your insurance company or financial advisor to check the same.

4️⃣ If You Are A Wealthy Individual
Whole life insurance is a great option for affluent individuals who have already exhausted other investment options. It provides a safe and reliable way to build wealth with no tax liabilities, making it a great option for those who are left with limited investment opportunities.


Wrapping Up!
Whole life insurance is a long-term financial commitment, so you need to carefully assess your financial goals and needs - to get the most out of the policy. By taking the time to thoroughly research and understand the policy details, you can make an informed decision. Additionally, consider speaking to an SMC expert who can give you a clear-cut perspective to decide if whole life insurance is the right choice for you and your family.


Insurance Knowledge Videos