Insurance

A contract (policy) in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients' risks to make payments more affordable for the insured.

Whole of Life Assurance

As the name suggests, the whole life insurance policies are intended to provide Life Insurance protection over one's lifetime. The essence of whole life insurance is that it provides for payment of the assured amount upon the insured's death regardless of when it occurs. Under these policies, the payment of the assured sum is a certainty in contrast to the term insurance contracts. Only the time of payment of the assured sum is an uncertainty. A life insurance contract with level premiums that has both an insurance and an investment component. The insurance component pays a stated amount upon death of the insured. The investment component accumulates a cash value that the policyholder can withdraw or borrow against.

Whole life policies can be either participating type or non-participating type. Participating type policies are those which are entitled to a share in the distributable surplus (profits) of the Life Insurance company, whereby the cash value of the policy can go up, with the announcement of bonus / dividend. Non-participating policies have the same benefit throughout the life of the policy. There is no fixed end date for the policy, as there is with term life insurance. When the policy holder dies, the face value of the policy, known as a death benefit, is paid to the person or persons named in the life insurance policy (the beneficiary or beneficiaries). The cost of a whole life insurance policy is spread out across many years, so the premium remains the same. This ensures that older people on a fixed income will not have to cope with rising premiums. Unlike term life insurance, whole life insurance accrues cash value over time. If you cancel the policy after a certain amount of time has passed, the insurance company will surrender the cash value to you. The cash value is scheduled to equal the face value when the policyholder reaches the age of 100. If you live that long, the insurance company will likely pay the face value to you in a lump sum. This is not the only way to use the cash value, however. You can also borrow some of the cash value as a loan. The money has to be paid back, but there is no approval process and no risk of being turned down. You are your own lender. Some whole life insurance pays dividends, so it can be used to supplement your retirement income.

There can be the following types of whole life policies

1. Ordinary Whole Life Insurance 2. Limited Payment Whole Life Insurance 3. Convertible Whole Life Insurance

Ordinary Whole Life Insurance

Ordinary life insurance provides insurance protection for the "whole life" of the insured, that is, from the time of the policy's purchase until the death of the insured. It is called "ordinary" because the premiums remain "level," unchanged for the life of the insured. In contrast, term life insurance policies provide protection for a specified term of one or more years. Other whole life policies can have flexible premium payment options different from ordinary life policies.

Limited Payment Whole Life Insurance

Limited payment insurance is a special kind of whole life policy that provides coverage for the policyholder's whole life. Payments are scheduled to end after a limited period.

Like the straight life insurance, in a limited payment life insurance policy, the death benefit remains the same throughout the coverage period, and the policy extends until the insured reaches age 100. However, different than a straight life insurance plan is that these plans can allow the payment of premiums over a period that is shorter than the actual duration of the coverage of the plan. The premiums are like the level life insurance plans; they are the same during the premium payment period, but they are more than an average straight life insurance policy's premiums would be. The cash value in the savings component increases more during the payment period as the protection component decreases.

Convertible Whole Life Insurance

This is a whole life insurance policy which gives its holder an option to get it converted at the end of five years, in to an endowment policy. If this option is exercised, the policy no longer remains a whole life insurance policy, if it is not exercised the policy continues to be, a whole life insurance policy. The policy is designed to meet the needs of the young man who is on the threshold of his career and has prospect for increase in income after a short period. The object is to provide maximum insurance protection at a minimum cost and at the same time to offer a flexible contract which can be allowed to an endowment policy at the end of five years of the policy. If the option is not exercised, the policy continues as a whole life assurance with premium ceasing at age 70. If the policy is converted in to endowment, the premium is suitably increased. However, no difference in premiums for the previous five years, and interest thereon, will be charged and he is not required to go under fresh medical examination. The vested bonus / units additions would be altered to an amount which the policy would have earned had it been effected from the

commencement as an endowment policy and further; the policy would thereafter be entitled to bonus or increasing units at the rate applicable to endowment assurance.

Advantages of Whole Life Insurance

Premium Cost is Guaranteed A key advantage of whole life insurance is that the cost of the premiums paid to the policy will never increase. The reason why this is important is because with term policies, your rates will rise over time. This is due to the changes in your health and age. As you get older, your chances of dying increases. Since the life insurance company takes on that risk, they increase the cost of premiums. With whole life insurance, the premium cost will stay the same as long as the policy is in force. Even if you are gravely ill, the cost will never change. It's guaranteed. Bonus Advantages of Whole Life Insurance As the years go by, the policy actually gets cheaper. What's one of the eroding factors of money? Inflation. As time progresses, you are paying the premiums with inflated rupees, which means that the premiums get cheaper and cheaper. The time value of money will be working.
Premium Consists of Guaranteed "Cash Value" and Death Benefit

The premiums paid go towards increasing the cash value AND death benefit. But the key here is that they are guaranteed. Your cash value and death benefit can never decrease in value unless you start withdrawing the cash value from the policy. Whole life insurance policy acts as a savings account, which is one of our strategies to save money. When you pay your premium and your cash value increases, it's guaranteed. When interest is earned and added to your cash value, it's guaranteed. The same applies to your death benefit.
Cash Value Grows Tax-Advantaged With a whole life insurance policy, you pay the premiums with after-tax . The cash value grows without taxation. You are only taxed after your withdrawals from the policy exceed your basis (the total amount that you put into the policy).However, there are strategies to get all of your money out, and the gains, TAX FREE! Policy Pays a Dividend Whole life insurance policies, also referred to as dividend paying, permanent insurance policies, pay dividends. Now, the key thing here is that these dividends aren't taxed. They are actually considered returns of premium. For example, let's say that you pay Rs1000 into the policy. At the end of the year, the insurance company looks at how efficient it was with your policy. Let's say they earned 10% on your policy

(Rs100). After deliberation, they decide to return Rs90 back to you (the Rs10 pays for administration fees and a contingency fund). This is not an actual gain. It is a return of premium, which is not considered a taxable event. This tax saving tip is widely unknown.And, a dividend paid to your policy does not lose value. It's value is guaranteed because now it's part of the cash value. Option to Have the Insurance Company Pay Premiums if You Become Disabled You can take advantage of a disability rider on the policy. In the event you become disabled, this rider has the insurance company continue the premium payments for you. You are no longer required to pay the premiums.Adding this rider to your policy is another advantage to whole life insurance. You transfer risk away from you to somewhere else. It's the closest to wealth without risk you can get. Provides Wide Flexibility You have the ability to do something special with the dividends. You can have the dividends paid directly to you. They can send you a check, no questions asked.Or, you can make those rupees work even harder for you. You have the option of having those dividends purchase additional paid-up insurance. Those rupees will buy more life insurance, provide a bigger death benefit, and earn interest.This advantage of whole life insurance will help you fight inflation. You have extra rupees growing your cash value and earning additional interest. Can Borrow From Your Policy Best of all, you have no obligation to pay the principal back. If you carry that loan balance to your death, the principal will be deducted from your death benefit. Cash Value Can Be Used as Collateral Banks will accept the cash value within the policy as collateral. Unlike your car and boat, this collateral is appreciating. Cash Value is Exempt from Creditors This is very important. We have encouraged our readers to protect their assets. Of course, life insurance protects the most important asset, you. The death benefit is in place to replace your Human Life Value in the event of your death.What some people don't realize is that the money inside a whole life insurance policy is protected as well. In the event that you are sued, creditors can't touch the money in your policies.

Disadvantages of Whole Life Insurance

High premiums. As the likelihood of death rises exponentially with age, the cost of a whole life policy will also go up. This means that it is necessary to pay extra in order that more of the money can be invested to pay for mortality protection and the eventual lump sum payment.

Wrong policy. Some people take out coverage because of the investment element. Although a bonus, it isn't the primary reason for taking out a policy. It is better to invest any surplus funds directly into equities and mutual funds as the returns are better historically.

Investments. The money is invested by a professional so there is little scope for optimising performance. A universal life insurance policy may offer an improved investment performance.

Inflexible premiums. There isn't any scope to make changes to take into account a change of personal circumstances or the need for a larger tax-free lump sum payment.

List of top Insurance Companies in India providing Whole Life Insurance

Life Insurance Corporation of India Bajaj Allianz Tata AIG Life Birla Sun Life Insurance SBI Life Max New York Life Kotak Life Insurance HDFC Standard Life Reliance Life ICICI Prudential