How does a whole life insurance policy work?In whole life insurance, the policy is purchased against a premium payment which can be a lump sum, monthly, or yearly. If one purchases a unit-linked whole insurance policy, a certain amount is kept aside as the sum assured while the remaining is invested in any investment fund.
Basis the market performance, the insurer reviews the policy and assesses if the value of the policy is equivalent to the cost of the insurance. In case the investment fund is not performing well, the insurer either asks the insured to reduce the sum assured or increase the regular contribution.
Types of whole life insuranceBroadly categorized into two, whole life insurance is present in the following:
- Non-participating whole life insurance: This has a face premium and face amount throughout your life. The advantages include fixed costs and low out-of-pocket premium payments. It also does not offer dividends.
- Participating whole life insurance: The defining feature of a whole life policy is that it pays dividends. The dividends are excess earnings in the form of investments, savings from expenses, and others. If the dividends are paid, it reduces the premium payment or will be accumulated to attract interest at a specified rate.
- Level Premium: Premiums are to be paid until the insured is alive. The initial premiums are used for insurance protection costs while the later premiums contribute to any shortfalls in protection costs.
- Limited Payment: Premiums are to be paid for a limited period, but protection is for a lifetime and therefore are higher.
- Single-Premium: Premium is paid in a lump sum and is more of an investment insurance product.
- Indeterminate Premium: Provides the option to adjust the premiums based on current earnings, expenses, and mortality
Who should opt for a whole life insurance policy?It is suitable for individuals who
- Have made investments towards post-retirement and looking for avenues to invest
- Own an estate and plan to bequeath the estate and transfer the wealth
- Have just started working and are able to make premium payments for a considerable time
Learn more about online life insurance plans
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
Disadvantages of Early Retirement - What Happens When You're Not Working?
Early retirement seems to be good, many people enjoy life without working especially with extra earnings. But they are not aware about the cons. Lets explore the disadvantages of retiring early to save your retirement life.
5 Benefits of Health Insurance that Makes it a Must Have Cover
Here are the 5 benefits of health insurance that makes it a must to cover
When Should You Withdraw Money from a Mutual Fund?
In case of a sudden change in fund strategy or an underperformance scheme for more than 3-4 years, it makes sense to withdraw money.