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Whole Life Insurance

TeamAckoApr 4, 2024

When it comes to coverage, one size definitely doesn't fit all; thus, life insurance comes in different forms. While a term plan provides extensive coverage at affordable premiums for specific years, a whole life insurance plan does double duty - it pays a death benefit whenever you pass and helps you build savings. This acts like a financial safety net for not just your family if you pass away but also your retirement years.

Whole Life Insurance

Contents

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Pros and Cons of Whole Life Insurance

Pros

Cons

 

Lifelong Coverage

Whole life policies protect until age 100

Higher Cost

Costs significantly more than Term Life policies

Fixed Premiums

Payments stay the same for the policy's lifetime

Complexity

Policy structure more complex than term insurance

Cash Value Growth

Builds guaranteed savings accessible to policyholders

Limited Flexibility:

Your coverage needs may evolve with life's changes

Loan Against Policy

Cash value can be borrowed against for needs

Slow Cash Value Growth 

Cash value growth may lag behind other permanent policies

Tax saving:

Premiums qualify for tax benefits under

Section 80C of the Income Tax Act

What is Whole Life Insurance?

Whole Life Insurance locks in lifelong coverage. It keeps covering you even as a centenarian! So, if you celebrate hitting triple digits, the money you've been growing unlocks as matured endowment funds.

During your lifetime, you also get to watch your "cash value" grow over time. Think of this pool like a savings account inside your policy. You can tap into it anytime as a loan if you need access before age 100. The best part? The amount your beneficiaries ultimately get paid after you pass away is tax-free. So they keep every cent thanks to whole life's special tax benefits. 

No wonder it's called permanent protection! Whole life insurance gives you a customisable way to cover your entire life's journey – short or long – while saving up funds just for you. It's like your personal financial bedrock.

Let's understand whole life insurance with an example: 

Suppose 30-year-old Raj buys a ₹1 crore policy by paying ₹80,000 annually. Over the next 20 years, the cash value might grow to ₹25 lakh. Raj can borrow against this for his daughter's wedding or medical costs.

Later, when Raj sadly passes at age 75, his wife Rita receives the full ₹1 crore tax-free. The cash value growth essentially offsets decades of premiums while leaving a lasting legacy.

How Does Whole Life Insurance Work?

As we know, whole life insurance policies give you lifelong coverage plus the growing cash value you control. But how does this all happen?

You choose a one-time lump sum or spread out payments over the years. Part goes toward the actual death benefit and assurance charges. Most importantly, the rest gets invested in markets! The insurance company reviews progress to ensure your policy value tracks projections. If markets sink and your investments lag, they may suggest tweaking your coverage amount or premiums so the policy stays sustainable at its original promise.

So, in a nutshell, whole life insurance protects your loved ones if you pass early and helps you build wealth while alive! Those premiums pull double duty - fueling invaluable coverage NOW and saving up for your future.

Additionally, some policies give customers the option to add on covers for:

In summary, whole life insurance can work via:

  • One-time or recurring premiums

  • Potential investment fund growth

  • Optional illness/disability riders

  • Careful policy reviews over time to align value with costs

6 Types of Whole Life Insurance

  1. Non-Participating Whole Life Insurance

  2. Participating Whole Life Insurance

  3. Level Premium Whole Life Insurance

  4. Limited Payment Whole Life Insurance

  5. Single Premium Whole Life Insurance

  6. Indeterminate Premium Whole Life Insurance

Non-Participating Whole Life Insurance:

This type has level premiums and a fixed death benefit amount for Life. The main advantage is predictable costs, but it does not pay dividends. So, what you see is what you get. Non-participating policies are a good fit if you prioritise predictability and are okay with missing out on potential dividend earnings. 

Participating Whole Life Insurance: 

These policies pay dividends from the insurer's excess earnings. Dividends can be taken as cash, used to reduce premiums, or purchase additional insurance. Dividend payouts are not guaranteed - they depend on the insurer's financial performance. Participating policies offer the potential for your money to work harder for you, but they usually come with higher upfront costs. This could be your match if you are okay with a bit of uncertainty for the chance at greater returns.

Level Premium Whole Life Insurance: 

Features guaranteed level premiums for Life. Early premiums support later years when annual payments are insufficient to cover rising insurance costs. This type of policy is great if you want to budget for the long haul without any surprises. You'll pay more at the start, but you can rest easy knowing your premiums won't suddenly spike when you're on a fixed income in retirement

Limited Payment Whole Life Insurance: 

A limited number of premium payments are required (e.g. 10 years), but coverage continues lifelong. The shorter the payment period, the higher the premiums! This option is perfect for knocking out life insurance payments during your prime earning years. You'll pay more monthly, but you can enjoy your golden years without worrying about ongoing bills.

Single Premium Whole Life Insurance: 

A single lump sum premium payment upfront funds the policy. This fully pays the policy, and no further payments are required. This type of policy functions more like a hybrid investment insurance product. It's a good choice if you have a significant windfall or nest egg you want to put to work while still securing a death benefit for your loved ones.

Indeterminate Premium Whole Life Insurance: 

Indeterminate premium policies adjust your payments yearly based on the insurer's earnings and expenses. If the company has a good year, your premiums might dip. If times are tough, you may pay more. It's like riding the wave of the insurer's financial performance. These policies offer flexibility and potential savings but require more attention since your payments can change.

Whole Life Insurance vs ACKO Life Flexi Term Plan

While whole life insurance delivers permanent, lifelong coverage, ACKO Life Flexi Term Plan from ACKO Insurance provides a highly flexible and easily affordable term plan that enables you to customise your coverage per your changing needs.

Basis of Comparison

Whole Life Insurance

ACKO Life Flexi Term Plan

Coverage Duration

Lifelong – covers insured for entire life if premiums paid

Customise coverage throughout the policy period. Increase or decrease your tenure as your financial dependents, loans (home, car, education), lifestyle, and income change.

Premiums

Remain fixed/level throughout the life of the policy

Lower Premium Rates

Cash Value

Policy builds up a cash value that accumulates over time

No cash value or investment component

Flexibility

Usually less flexible – modifications require paperwork

More flexible to modify coverage amount

Costs

Substantially higher – 4-15x costlier than term insurance

Highly affordable with the flexibility to change the coverage and duration

Payout

Lifelong payout guaranteed as long as premiums paid

Only pays if death occurs during a set term period

Good For

Estate planning, final expenses, lifelong income protection

Paying off mortgages, child expenses, daily expenses, and more

Tax Benefits

Premiums and death benefit payout are tax-free

Premium and payout tax-free

ACKO Life Flexi Term Plan

ACKO Life Flexi Term Plan is an innovative term insurance product that stands out for its unparalleled flexibility and ability to adapt to Life's changing circumstances. Key advantages include:

Adaptable Sum Assured

Flexible Policy Tenure

Flexible Payout Options 

Will Creation Service

Affordable Premiums

Easy Claim Process

Our digital-first approach means claims can be initiated online with minimal paperwork. With a track record of swift payouts, you can trust that your loved ones will receive the financial support they need without undue hassle during an already difficult time.

Whole Life Insurance Cash Value Growth

What is Cash Value Life Insurance?

Think of the cash value as a special savings account into which a portion of your premiums regularly feed. The money accumulates 100% tax-free based on a preset guaranteed interest rate. Many insurers even pay bonuses above that minimum rate.

How Does Cash Value Grow Over Time?

When you make premium payments, part covers the actual death benefit costs. But the rest goes straight into beefing up your cash value funds! This happens each year, allowing the cash value to increase through:

  • Guaranteed interest earnings on existing funds

  • New premium contributions made annually

Over 10-20 years, the cash value typically builds to significant sums the policyholder can utilise.

The cash value savings component invests through the insurer's general investment account. Returns are tied to the overall performance of the insurer's investment portfolio of assets. Insurers can provide competitive interest rates and returns by pooling funds across policies.

In summary, the cash value provides policyholders guaranteed growth on a portion of premiums paid over decades, serving as a source of funds that can be tapped into while alive. This gives whole life insurance, both death benefit protection and personalised saving benefits. 

Determine Which Policy Works For You

When choosing between whole life insurance and ACKO's flexible term plan, consider your timeline, budget, and need for adjustments down the line.

Situation

Recommended Policy

Need lifelong permanent coverage

Whole Life Insurance

Limited budget or temporary coverage needs

ACKO Life Flexi Term Plan

Prioritise flexibility and customisation

ACKO Life Flexi Term Plan

Want to leave an inheritance or legacy

Whole Life Insurance

Seeking polished digital-first experience

ACKO Life Flexi Term Plan

Desire investment accumulation possibilities

Whole Life Insurance

Uncertain about long-range financial needs

ACKO Life Flexi Term Plan

The streamlined digital process and rapid claims settlement differentiate ACKO's term plan in the Indian insurance market. If you want an affordable, adaptable term policy, the ACKO Life Flexi Term Plan is likely the ideal choice. 

How to Buy Whole Life Insurance

Purchasing a whole life insurance policy involves:

  1. Determining the appropriate death benefit amount based on income needs and goals

  2. Researching insurers, calculating projected premium costs at different coverage levels

  3. Completing the policy application and medical/health checks if required

  4. Providing financial documentation verifying income and net worth to satisfy underwriting requirements

  5. Review policy terms like riders, dividends, loan interest rates, and exclusions before signing

  6. Submitting premium payments annually, semi-annually, or monthly, depending on the schedule selected

Additional Riders Available

Riders can enhance whole life insurance coverage. Some of the most popular ones include:

  • Accidental Death Benefit Rider: Extra payout in case of accidental death

  • Waiver of Premium Rider:  Waives premium payments if disabled

  • Critical Illness Rider: Provides additional lump sum payout for specific critical diagnoses

How to Choose the Right Whole Life Insurance Policy

Key factors when selecting a whole life insurance policy are:

  • Reputable insurance carrier with a strong financial rating: Look for a reputable insurer with a solid financial rating. A stable company is more likely to be around for the long haul to pay out your benefits. 

  • Premium rate competitiveness within budget: Compare premium rates from multiple providers to find a policy that fits comfortably within your budget. Don't overextend, but also don't skimp on coverage.

  • Projected cash value accumulation: Examine illustrations of projected cash value accumulation over time. Look for policies with competitive growth rates and guaranteed minimums.

  • Dividend history and projections: If considering a participating policy, review the insurer's history of dividend payouts. Consistent, reliable dividends can be a sign of a well-managed company.

  • Policy loan rates and withdrawal flexibility: Check the policy's loan provisions, including interest rates and repayment terms. Flexible, low-cost loan options can provide easier access to your cash value if needed.

Analysing insurers based on these criteria results in the ideal whole life insurance plan customised to your financial situation. Consulting with a certified insurance advisor also helps navigate product selection.

Factors Affecting Whole Life Insurance Premium

Several key factors can impact the premium you pay for a whole life policy.

  • Age: The younger you are when you purchase a policy, the lower your premiums will generally be. That's because younger individuals are seen as less risky to insure.

  • Health: Your overall health and medical history can significantly affect your premiums. Healthier individuals typically qualify for lower rates, while those with pre-existing conditions may pay more or even be denied coverage.

  • Lifestyle: Certain lifestyle choices, such as smoking or participating in high-risk hobbies like skydiving, can lead to higher premiums due to the increased risk they pose.

  • Coverage Amount: The higher the death benefit you choose, the more you can expect to pay in premiums. More coverage equals more financial risk for the insurer.

  • Policy Type: Different types of whole life policies (like participating vs. non-participating or level vs. limited payment) can come with different premium structures. Some may start higher but remain level, while others may be lower initially but increase over time.

  • Riders: Adding optional riders, like critical illness, accidental death benefit, waiver of premium, or long-term care coverage, will generally increase your premium costs.

  • Gender: On average, women tend to live longer than men. As a result, women often qualify for slightly lower life insurance premiums.

  • Insurer: Different insurance companies have different underwriting guidelines, which can result in varying premiums for the same coverage amount.

Understanding these factors can help you make informed decisions when selecting a whole life policy and budgeting for your premium payments. Many insurance companies have online premium calculators on their websites. You can use these calculators to get an estimate of the premiums.

How to claim against a Whole Life Insurance Plan

If you have a Whole Life Insurance plan and need to file a claim, here are the steps you should follow in general.

Step 1: Notify the insurance company:

Contact their customer service department or your insurance company. They will provide you with the necessary forms to complete the claim.

Step 2: Provide documentation:

You will need to provide documentation to support your claim. This may include a death certificate if you are filing a claim for a death benefit, medical records if you are filing a claim for a critical illness benefit, or proof of disability if you are filing a claim for a disability benefit.

Step 3: Complete the claim form:

Make sure to fill out the form accurately and completely. Any errors or omissions can delay the processing of your claim.

Step 4: Submit the claim form:

After completing it, submit it along with the supporting documentation to the insurance company.

Step 5: Receive the benefit:

Once the claim is approved, the insurance company will issue the benefit to you or your beneficiary.

How to calculate Whole Life Insurance premiums 

If you're looking to calculate the premiums for a Whole Life Insurance policy in India, here are the steps you can follow.

  1. The first step is to decide how much coverage you need.

  2. The next step is to choose the policy term (the length of time you want the policy to remain in force). With a Whole Life Insurance policy, the coverage is for the insured person's lifetime.

  3. Next, decide on the premium payment frequency. Usually, it is monthly, quarterly, half-yearly, or annually.

  4. Many insurance companies have online premium calculators on their websites. You can use these calculators to get an estimate of the premiums.

  5. Once you have calculated the premiums from multiple insurers, you can compare the costs and benefits of each policy to choose the one that best fits your needs and budget.

Wrapping It Up

With proper planning, whole life insurance can provide multi-generational risk protection and valuable cash value benefits that endure throughout one's lifetime.

Frequently Asked Questions (FAQs)

Below are some of the frequently asked questions on Whole Life Insurance

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What is the difference between whole Life and term insurance?

Whole Life offers lifelong permanent coverage along with cash value savings. Term life only covers a set timeframe of 10-30 years without investment components. Term insurance is more affordable but expires.

How much does whole life insurance cost?

For lifetime coverage, expect whole life premiums to cost around 4-15 times more than an equivalent term policy. A thumb rule is to anticipate annual whole life premiums of 3-7% of the death benefit amount.

Can the premium rate increase for whole life insurance?

No, one of the appeals of whole life insurance is that it locks in guaranteed premium rates for the full duration of the policy, so you have cost predictability.

Is the payout taxable income?

Yes, there are tax benefits associated with a Whole Life Insurance policy in India. The premiums paid are eligible for tax deductions under Section 80C of the Income Tax Act, and the death benefit and maturity benefit are tax-free under Section 10(10D).

When is the cash value available?

Most whole life insurance policies begin accumulating a cash value component starting in year 2 or 3 that gradually builds over subsequent years/decades. The timeframe to access funds via loans depends on the insurer.

Can the death benefit be lowered to reduce premiums?

Certain policies allow this adjustment, while others don't. Even if not changed, the initial death benefit locks in upon purchase. Lowering it simply means fewer total premiums paid over time.

What happens if the policyholder stops paying the premiums on a Whole Life Insurance policy in India?

If the policyholder stops paying the premiums on a Whole Life Insurance policy in India, the policy may lapse or be terminated. The policyholder may be able to reinstate the policy by paying the back premiums and any associated fees.

Can a Whole Life Insurance policy in India be surrendered?

Yes, the policyholder can surrender a Whole Life Insurance policy in India in exchange for the cash value accumulated in the policy. However, surrendering the policy may result in a lower cash value than the total premiums paid.

Is a medical examination required to obtain a Whole Life Insurance policy in India?

A medical examination is usually required to obtain a Whole Life Insurance policy in India. The examination helps the insurance company assess the policyholder's health and determine the premium amount.

What is the role of the nominee in a Whole Life Insurance policy in India?

The nominee in a Whole Life Insurance policy in India is the person designated by the policyholder to receive the death benefit in the event of the policyholder's death. The policyholder can change the nominee at any time.

Can a Whole Life Insurance policy in India be converted to a Term Life Insurance policy?

No, a Whole Life Insurance policy in India cannot be converted to a Term Life Insurance policy. However, some insurance companies may offer riders or additional benefits that can be added to the policy.

What happens if the policyholder outlives a Whole Life Insurance policy in India?

In a Whole Life Insurance policy in India, the coverage continues for the entire life of the policyholder. There is no policy term (lifelong coverage), so the policyholder can continue to enjoy the benefits of the policy as long as the premiums are paid.

Can a Whole Life Insurance policy in India be purchased online?

Many insurance companies offer the option to purchase a Whole Life Insurance policy in India online. The process is usually simple and can be completed in a few steps. However, it's important to ensure that the insurance company is reputable and trustworthy before making a purchase online.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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