The lack of understanding or interest in finance and money management, is often a major deterrent to financial planning. People are typically comfortable with commonly understood options, such as fixed deposits (FDs), mutual funds (MFs) and equity markets. Those in their post-earning years prefer the safety of FDs, as the fear of not being able to recover their investment lowers their risk appetite.
However, there is an under explored alternative that assures security along with long-term returns. Add to these, an additional component of lifelong coverage, and you have the option of whole life insurance plans.
Whole life insurance plans come with an additional benefit of low maintenance. Unlike stocks or MFs that need constant monitoring and management, most whole life insurance plans do not need any active involvement, only timely premium payment.
Types of Whole Life Insurance Plans – Protection and Investment
Whole life insurance offers the longest coverage against loss of life, i.e., up to 99 years of age. This makes it an insurance with a permanent validity. In addition, the premium payment amount and term can be customized to align to the customer’s convenience, current obligations, future goals, payment feasibility, and professional compensation.
Let us understand the different kinds of whole life insurance plans and the multitude of benefits they offer, that facilitate goal-based investing. Below are examples of some basic whole life product structures available in India.
Lifetime Protection Plan: This is the simplest plan, which ensures lifetime coverage until the policyholder’s death. Protection plans offer two premium paying terms – limited and regular. Limited term allows the policyholder to pay premiums for a limited tenure, whereas regular term stretches these across the entire duration of the policy, i.e., all through the policyholder’s lifetime. Both premium paying terms offer lifetime coverage until 99 years of age. In case of the premature death of the policy holder, the entire sum assured is paid to the nominees.
Lifetime Income Plan: This plan assures a lifetime of regular income post a defined age or policy term. The premium paying term is limited, whereas the income is received post the policy term for the rest of life. Some plans may include an additional lifetime insurance cover till 99 years of age, which serves as a death benefit. This provides a dual benefit of income and security for the beneficiaries.
Lifetime income plans are also future focused. They allow the policyholder to purchase additional new age riders, which provide financial support for Alzheimer’s, Parkinson’s, cardiovascular and other lifestyle diseases. This avoids unexpected health costs eroding into the retirement corpus.
Endowment Plans: A whole life plan with an endowment structure pays the policyholder the sum assured on maturity, at the end of a fixed term. In addition, the insurance coverage stays active till the age of 99 years, or as per your preference.
Benefits of Whole Life Insurance
Insurance has typically been a grim topic with negative connotations. Whole life plans are the antithesis, offering more benefits, more certainty.
Protection for Lifetime: Whole life plans offer the longest coverage, i.e., till the age of 99 years. For policyholders to reap the maximum benefits, it is advisable to start investing at a young age as the policy benefits can accrue significant value over a long-term period.
The premium cost is also considerably lower, which enables the purchaser to opt for a higher cover that can keep pace with future inflation. Unlike term insurance policies which disburse the sum assured to the beneficiaries on the policyholder’s death, whole life plans, especially the income and endowment plans, allow policyholders to enjoy the returns on investment during their lifetime.
Financial Security from Day One: Most insurance policies stay active only if the premiums are paid on time and in full. The unexpected death of the policyholder could affect the amount of the sum assured. Whole life plans are independent of this and offer certainty in the event of uncertainties. The cover starts on the date of the policy and continues all through life. The premature death of the policyholder does not affect the amount of the sum assured payable to the nominees.
Protection Against Health and Life Risks: People expose themselves to various stressors in everyday life, which could lead to serious health implications. Whole life policies may offer additional riders that cover critical and lifestyle diseases, accidental death, or disability. These riders alleviate the burden of exorbitant medical expenses for the dependents, ensuring their savings stay untouched.
Lifetime Income: Irrespective of the income bracket or source, the lifetime income plan is a prudent decision to safeguard against uncertainties or inflation, especially during the retirement or post-retirement years. The income may be utilized to supplement an existing income, to fund everyday expenses, support an additional interest or venture, be set aside for contingencies, or even be further reinvested in additional instruments to grow the retirement corpus.
Tax Benefits: The premiums payable as well as benefits received under the policy are exempted as per applicable tax laws. The premiums paid towards the policy receive a tax rebate of up to Rs. 1.5 lakhs. The sum assured received by the beneficiary or policyholder is also exempt from tax as per Section 10(10D) of the Income Tax Act as per prevailing tax laws.
Fixed Premium Rates: The consistent premium outflow and payment term ensure certainty. These remain consistent regardless of any change in age or health. Some whole life policies continue to offer the insurance cover even post the premium payment period, providing a dual benefit.
Loan Against Policy: Most whole life plans allow the policyholder to borrow against the policy, provided all premiums till that date have been paid. It Is beneficial, especially in the case of unexpected emergencies.
Legacy Planning and Estate Protection: Whole life plans are a wise choice for business families looking for equal distribution of assets to their family members. The policyholder may purchase multiple plans with a sum assured that is equivalent to the estate value, to ensure all the beneficiaries get equal value of benefit (one through estate while others through benefit from insurance policy).
The Best Time to Invest Is Now
Lifespans are increasing. On the other hand, unexpected events such as the global pandemic and other natural disasters have proven that it is increasingly important for people to plan for their long-term future. Whole life insurance is becoming a popular investment option for its long coverage duration and guarantee of sum assured, as death benefit is payable well beyond expected life expectancy.
The plans also seem to have a buy-in with the current generation, Gen Z, who, though motivated more by passion and purpose than by pay scales, seek security outside of their income. The ‘gig’ economy has also grown significantly in the past decade with the Associated Chambers of Commerce and Industry of India (ASSOCHAM) projecting it to grow at a compounded annual rate of 17% to reach $455 billion by 2023.
Whole life protection plans, with their limited premium paying term, offer the perfect solution for this contemporary mindset who believe in laboring for a few years, only to fulfill their responsibilities.
Lifetime coverage till 99 years of age. A customized premium payment term that stays fixed all through the plan duration. The opportunity to supplement one’s income, pre as well as post retirement. Optional riders that cover exorbitant critical and lifestyle diseases. Tax benefits on both, premium paid and sum assured. With such a bouquet of benefits, there is every reason for a whole life plan to be a part of your financial plan.