Life insurance for a lifetime - Who needs it?

Life insurance is a basic necessity today and comes in various types. They all have one commonality - they provide life cover to the policyholder for a fixed tenure called the policy term. This cover is for a sum assured that is paid out to the nominees in case the policyholder happens to meet an untimely demise during the policy tenure. Different types of life insurance give the option of choosing different policy tenures. We will look at one such type that provides a life cover for the policyholder's entire lifetime. Do you need life insurance for a lifetime? Here's examining the same.

Why do you need life insurance?

It is widely accepted that life insurance is indispensable for any individual to safeguard their family's financial future in their absence. These plans come in various avatars, including regular term insurance plans, retirement plans, child plans, endowment plans, and whole life insurance as well. You can use a life insurance calculator online to determine various factors, like premiums, returns, etc., for these policies and decide which one suits you the best.

What is whole life insurance?

A whole life insurance policy covers the entire lifetime of the insured person. This is usually till the age of 99 in the case of most policies. The policyholder's nominees receive the guaranteed death benefit or sum assured in case of their demise before the age of 99. These plans are sometimes a combination of insurance and future savings since they come with survival and maturity benefits. While enjoying life coverage for a lifetime, the insured person also gets a maturity benefit upon survival. Here are some of the key factors of these policies:

• Fixed premiums - These policies have fixed premiums throughout their premium payment term, which may be limited or last for the policy’s entire duration. This is finalized at the start of the policy tenure after accounting for things like the profession, age, and lifestyle habits of the insured individual.
• Survival Benefits - The policy will offer survival benefits if the premiums are paid promptly and regularly. You will receive a survival benefit that is equivalent to the Sum Assured of your policy. In case you chose critical illness coverage, and the critical illness benefit was paid out during the policy term, the survival benefit will be the Sum Assured after subtracting the amount of critical illness benefit paid.
• Lifetime Coverage - These plans offer full coverage for the entire lifetime of the insured individual, up to the maximum age of 100.

Traditional policies are subdivided into two main types of whole life insurance policies: non-participating and participating plans. The maturity benefits that you receive usually depend on the policy type that is chosen.

Participating whole-life policies are those where bonuses are paid out to policyholders. In the context of life insurance, a bonus is an amount that accumulates annually under the policy. Only participating policies are eligible for the bonus since they partake in the insurance company's investment gains, which are then paid to the policyholders in the form of bonuses. This bonus payment is payable in addition to any life insurance policy payouts.

Non-participating policies are comparatively affordable and do not come with any additional bonus payments to the insured person. They only offer life coverage in return for the payment of the premium.

Main benefits of whole life insurance

Some of the benefits include the following:

• Mental Peace - Policyholders can remain worry-free about their family's financial future in their absence. Upon attaining coverage for a lifetime at a fixed premium amount, there is great mental peace.
• Affordable Option - Whole life insurance policies offer a high sum assured when compared to the premiums paid, making them an affordable life insurance option. Opting for them early can also be beneficial for you since the premium stays the same throughout the policy term.
• Flexibility In Premium Payments - One can choose quarterly, monthly, yearly, or half-yearly payment options for premiums. Some insurers also provide the option of limited premium payment terms wherein you are required to pay the premiums only for a fixed term.
• Tax Deductions - Premiums up to Rs. 1,50,000, paid under these plans, are exempted from tax under Section 80C of the Income Tax Act, 1961. Maturity and death benefits are also exempted from taxation as per Section 10 (10D).
• Serves As A Cash Source - Over time, the cash value of the whole life insurance policy can increase. You can take a loan against this value at reasonable interest rates if you ever need money. There may also be a surrender value of the policy that the insurer pays out in case you require financial assistance. This value depends on the terms and conditions of your policy.

Who is a suitable candidate for whole life insurance?

A whole life insurance policy is more suitable for someone who wishes to accomplish long-term objectives like the higher education of children or their weddings. These plans may be good options since many individuals have to financially support their households even after retiring. Those who wish to attain more financial freedom after retirement can also choose these plans since they often have part-withdrawal options, depending on the policy's terms and conditions. Furthermore, whole life insurance policies are a suitable choice for individuals who are the sole breadwinners of their households and wish to provide financial security to their dependents after their demise.

Choosing a whole life insurance plan can be a wise move when it comes to covering all financial commitments throughout one's lifetime. Investing in a plan like this is ideal when one is at a younger age. This may also help generate higher savings since premiums are consistently lower for younger policyholders. However, one should do thorough homework before investing in these policies. The sum assured should also be chosen with care to account for inflation and the future financial needs of the entire family. In case of doubts, it is always prudent to seek professional assistance/guidance before investing in a whole life insurance plan.

(Disclaimer: Devdiscourse's journalists were not involved in the production of this article. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)