Whole Life plan provides life insurance cover for the entire life of a person or 100 years, which is less. Unlike fixed term plans or endowment policies, whole life insurance policies provide financial security throughout the life of the insured. However, there is an endowment or "saving" feature built into the whole life plan. A portion of the premium in a whole life plan goes towards the life insurance cover, while the balance is invested to provide return on investment for the insured. Whole life plans are quite popular in the advanced economies like the US, and are gaining popularity in India as well. How does whole life insurance work? The insured pays premiums every till a certain age, known as the maturity age. As discussed earlier, a portion of the premium goes for the life insurance cover and the balance is invested, just like in an endowment plan. If profits are made on the investments, the insured gets a bonus on the invested amount. Once the maturity age is reached, the insured has the option of either continuing with the life insurance cover till death or surrendering the policy and taking the benefits which includes sum assured and bonus, if applicable. What is the maturity age? It is usually between 80 to 100 years, but some plans have lower maturity ages. There are different whole life insurance plans, like policies with single premium, limited pay, limited pay with money back and regular pay options. In the event of an untimely death of the insured, the nominees will receive the sum assured. Generally, the premium for whole life insurance plans remain constant during the entire term of the policy and the insured gets life insurance cover right throughout.
A major appeal of whole life plan is that, it provides life insurance cover even during your retirement, for which you may or may not have to pay premiums, depending on the policy you choose. But the question is do you need life insurance during your retirement? Common sense logic would say that we do not need life insurance after retirement. If your children are financially independent before your retirement, then they do not need the protection of your life insurance, in the event of an untimely death. Since you do not have a professional income during your retirement, there is no financial loss to the dependants, including your dependent spouse in the event of an untimely death during retirement. The addition premium that the policy holder pays for whole life policy can be invested in assets that give better returns. The logic is very sound. However, there are several reasons that compel us to consider whole life insurance plans. The first reason is increased longevity. If you think that, your dependent (e.g. spouse) will outlive you by many years, and your retirement savings may not be sufficient to support her, then taking whole life insurance makes a lot of sense. You give up some income, but you can financially protect your dependants over their lifetime. The other reason is increasing healthcare costs. A long and serious illness that ultimately results in death, is not just emotionally distressful for the dependants, but expensive medical treatments also sets them back financially quite a bit, unless the medical expenses are covered by health insurance.
Conclusion
In this article, we have discussed several considerations, related to buying whole life insurance plans. There are several pros and cons of whole life insurance plans. The suitability of whole life insurance plans depends on your own personal situation. You should consult with your financial adviser, if whole life insurance plan is suitable for you.
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