Whole life insurance plans in India

Among the different types of life insurance policies in India, whole life insurance plans are a category which many investors have warmed upto. The reasons range from the fact that they provide life cover all through your life, as their name itself suggests to the fact that they have a savings component built into them.

These policies are often bought by those who are caught in the insurance is investment rut and that it can help save money for the long term – do check on why life insurance is not an investment and you will think otherwise. Let us check on a few features on whole life insurance plans and whether it makes sense to buy them.

What are whole life insurance plans ?

Unlike the limited period term plan or endowment policy, whole life insurance plans are in force for as long as the insured lives. They provide financial security throughout the life of the insured. Like any other insurance policy, a whole life insurance plan provides for the financial needs of a loved one after the death of the insured. Besides providing an assured amount as death benefit, it offers protection to the insured to meet any unforeseen financial need as most whole life policies offer the facility to take a loan against the policy.

The way such polices work is that the policyholder has the option to pay premiums till a certain age, which is generally 80 to 100 years.  This is called the maturity age. When this age is reached, you can either continue with the cover till your death with no obligation to pay any premiums or you can encash the benefits – sum assured and bonus, if applicable.

Many life insurance companies are providing for payment of sum assured plus bonuses in the form of maturity claim on completion of a particular age – such as 80 years (in the case of some LIC policies) or in some cases 99 years (Kotak Mahindra Life Insurance). There are some whole life policies like that of HDFC Life which give an option withdrawing from the policy after 5 years (and on every fifth anniversary thereafter).

Generally, the premium for whole life insurance plans remain constant during the entire term of the policy and the policyholder gets life cover right throughout. The premium payment terms differ from policy to policy – from a single premium policy to payments for whole life to payments upto retirement age and several other options in between. Then there are riders that are made available on the basic whole life insurance policy.

Points to note on whole life insurance plans

• The whole life policy locks in or freezes your premiums for your life time. If you buy the policy at 18 years when you are entitled to a low premium rate, you will pay the same premium till the policy matures. There will be no further medical examinations and no increase in premiums. Usually the premiums are at the lowest when you are young and they increase as you get older. In a whole life insurnace policy, the premium you pay will be the same till the end of the policy so it is wiser to take it early in life.
• It creates an inheritance for your loved ones.
• At an advanced age it provides for your post retirement planning.
• It provides funds in time of needs as you can borrow against it or you can withdraw the policy.
• The premium of a whole life insurnace plan will always be more than that of a plain vanilla term plan. Such policies go against the basic principle of taking life cover through term plans and investing the premium money thus saved in systematic investment planning of mutual funds.

Whole life insurance plans are suitable for ?

• People who have invested for their post retirement needs and intend to invest in other avenues.
• Any person who wants to plan his estate and bequeath his savings to one or more beneficiaries. It is often used to transmit wealth.
• This policy is most advantageous, if individuals take this policy at a young age where you can pay the same premium over length of time.

Whole life insurnace plans are most beneficial when taken at a younger age since you get the advantage of paying a lower premium over the term of the policy. However it makes lesser sense if you take it in your forties and fifties since the premium is considerably higher by then. At a later stage of life it would make more sense to take a term plan and invest the difference amount.

Another argument is that life insurance is really not required when you begin to near retirement – so having a life insurance policy for life does not make sense at all. This argument does hold water and if you think for a moment, by the time you are in your fifties, your kids would have probably stepped out of home and you would possibly be a tt he peak of your earning career – so the need for life cover or insurance is not huge.

Do you have any whole life insurance plans and how did you end up with them ?