Permanent Life Insurance vs. Whole Life Insurance Plans

Whole Life plans are also known as 'Straight Life' or 'Ordinary Life' plan. These policies remain throughout the insured person's whole lifetime, provided that the premiums are paid. The nominee receives a previously notified amount if the insured person expires. Moreover, the policyholder is allowed to withdraw the policy at any point in time or even borrow money against it. Whole Life Insurance Plans have a maturity age of 100 years. If the policyholder lives past the maturity age, then the policy is converted to a matured endowment. The death benefit provided by this plan is tax-free.

How Do Whole Life Insurance Plans Work?

Whole life insurance plans are quite different from the other types of life insurances. It is important for potential customers to understand how these policies work so that they can decide whether they should subscribe to such plans. A whole life plan is to be purchased against a payment. This payment can be made as a one-off sum or on a monthly/yearly basis. For unit-linked whole life policies, a part of the payment amount is directed towards purchasing the life insurance and the remaining amount is invested in an investment fund. For unit-linked/flexible whole life policies, the policy is regularly reviewed by the insurer to compare if its value is equivalent to the cost of the life assurance it is providing. If the investment fund in which a part of the fund is invested doesn't perform well enough to help cover the cost of benefits, the insurer may suggest the policyholder to either reduce the amount of the sum assured or to increase the premium amount. Additionally, some whole life policies also provide the option of receiving cover against disability or specific diseases.

Types of Whole Life Policy

There are two broad categories of Whole Life Insurance Policies, specifically designed to cater to specific requirements.

1. Non-Participating Whole Life Insurance

These policies have a level premium and a face amount during the policyholder's entire life. The fixed costs and relatively low premium payments are the highlights of these policies. Non-participating policies do not pay any dividends to the policyholders.

2. Participating Whole Life Insurance:

Unlike the previous type of whole life plan, these policies pay dividends. The dividend indicates the excess earnings accumulated by the company through investments and savings from expenses. It also reflects the favorable mortality of the organization. There isn't any guarantee that the policyholders will receive dividends. However, if at all dividends are paid, it is usually directed towards reducing the premium payment amount or it is accumulated in the policyholder's account. The dividends may also be used for purchasing additional insurance or add-on riders to enhance the value of the coverage provided.

Both of these two categories of whole life insurances have several types of policies for individuals to choose from:

Level Premium Whole Life Insurance: These are plans that feature level premium payments. The premium for such policies has to be paid until the policyholder is alive. The premiums received in the early stages are adequate for the insurance protection costs. The surplus funds, including the earnings from interests, contribute to any shortfalls in premium payments at a later stage when the annual premium paid may not be sufficient to cover the insurance costs.

Limited Payment Whole Life Insurance: In these plans, the policyholders are required to pay the premium amount for a limited period (a specified number of years) to receive lifetime protection. Understandably, the premium amount is relatively higher than that of ordinary whole life plans as the premiums are paid for a shorter period.

Single Premium Whole Life Insurance: Subscribers of this kind of whole life insurance are required to make a single lump sum premium payment during the issue of the policy. Thus, these are completely paid up policies providing a significant loan value as well as an immediate cash value to the insurer. Since these plans involve a lump sum premium payment, they are considered more of an investment than an insurance product.

Indeterminate Premium Whole Life Insurance: These policies allow the policyholders to adjust their premiums. The insurer estimates the policy's current earnings, calculates the cost of expense and assesses the mortality and accordingly charges a "current" premium. If there are any changes in the estimates, the insurer accordingly adjusts the premium amount.

Who Should Opt For Whole Life Insurance?

Whole life insurance policies can be suitable forms of protection for:

• People who have already made investments towards their post-retirement requirements and are looking for other opportunities to invest in.

• People who own an estate and wish to bequeath the estate and savings to their beneficiaries and hence transfer their wealth.

• Young professionals who are capable of making premium payments for a considerably long time.

Benefits

Cover For Life: Unlike general life insurance plans that offer cover for a fixed period, the whole life insurance policies give the policyholder cover for his entire life. If a 25-year-old person purchases a whole life plan for 20 years, he/she will receive a lump sum at the age of 45 years when the policy matures; furthermore, the life cover will continue till the policyholder turns 100 or till he expires.

Assurance of Coverage, Periodic Payments & Tax Benefits: The survival benefits of whole life insurance plans are built over time and it keeps increasing over time. Policyholders receive lifetime coverage as well as a constant premium amount throughout the limited premium payment term. The sum assured is also guaranteed and the bonus amounts are declared as per the performance. Some insurers also offer survival benefits in the period between the end of the premium payment term and the maturity. Moreover, tax benefits are also available.

A Source of Cash: Most financial experts advise that people must keep liquid asset worth 6-8 month’s living expenses. It is, however, quite difficult to reserve such a lump sum in cash while saving for retirement and long-term financial goals. A whole life plan offers a lump sum in cash as the premium payment term ends.

Loan Option: The surrender value of whole life insurance policies increase over time and the policyholders can borrow against the policy’s surrender value. It is undoubtedly a better alternative than borrowing against other collaterals.

Beneficial for Dependents: The return from whole life insurances can be an additional financial source in the family. it helps in generating and growing wealth.

Eligibility Criteria

The eligibility criteria for whole life insurances differ from one insurer to the other. Potential subscribers must approach the insurer directly to get the details about the eligibility criteria for a chosen policy.

Riders

Most insurances offer add-on benefits to enhance the protection provided. They can be added to an existing policy and they offer additional coverage over and above the coverage offered by the policy. These are optional add-on benefits that the policyholders can choose based on their requirement and need. Whole life insurances also offer riders for critical illness, disability, emergency hospitalization, accidental death, etc. However, the array of available riders value from insurer to insurer. Thus, policyholders must approach the insurer directly to find out about the available riders.

Popular Whole Life Policies

There are many leading insurers in India offering competent and customizable whole life insurance policies at affordable prices. Some of the popular policies are listed below.

ICICI Pru Whole Life

• Survival benefit - The policyholder receives the sum assured and bonuses at maturity.

• Life cover benefit - In the event of the policyholder's death, the dependent or nominee will receive double the sum assured plus the bonus collected during the premium payment term.

• Whole life cover - If the policyholder dies after completing the premium payment term or he lives till 100 years of age, he/she receives an additional sum assured.

• Regular bonuses, as declared at the end of every financial year.

• Rider - to enhance coverage.

• Tax benefits.

Max Life Whole Life Super

• Flexible premium payment terms.

• Guaranteed lifetime protection.

• Flexible bonus option.

• Riders are available.

• Paid up additions withdrawal.

• Terminal illness benefit.

• Maturity benefit paid at maturity.

• Death benefit for the dependent/nominee.

IDBI Federal Lifesurance Whole Life Savings Insurance Plan

• Two lump-sum payouts - the end of the premium payment term and when the policy matures.

• Coverage for family till the policyholder turns 100.

• Guaranteed additions and bonuses

• Accidental death benefit - available during the premium payment term.

SBI Life Shubh Nivesh

• Maturity benefit - based on the plan chosen.

• Death benefit - available on endowment option with whole life option.

• Deferred maturity payment option

• Three riders - Preferred Term Rider, Accidental Death Benefit Rider and Permanent Disability Benefit Rider.

• Tax benefits

LIC Whole Life Policy

• Death benefit - the nominee/beneficiary receives the sum assured and the accrued bonus.

• Maturity benefit - the policy matures after 40 years from the date of its commencement provided that the insured has turned 80 years.

• Income Tax benefit - applicable to all the premiums paid.