A Whole Life policy is just that. It offers life insurance cover throughout the life of the insured.
Earlier we saw how a Term policy works. It covers against the risk of death during a specified term and has no maturity or survival benefit once that term is over. Usually there is an upper limit of 65 or 70 years of age.
A Whole Life policy, on the other hand, covers the life assured through their natural life. Companies do define this variously as up to age 99 or age 100.
Unlike a Term policy which is a highly focussed policy as described above, the Whole Life policy can have various features. Should the life assured die, the payment is made to the nominee and if they survive the policy date, the policy gets converted into an endowment which pays out on their passing away.
The Whole Life policy would cost more than the Term policy, naturally, and you should be able to sustain the premium payment until age 100 or so. Apart from options for regular premiums for the entire term of the policy, limited premium paying terms are available and one can choose from them depending on income flows. Single premium policies are also available.
Choose a Whole Life policy when you have dependants and when your responsibilities towards them will extend to your super senior years. Should you assess that your children, for example, will be standing on their own feet by the time you retire, a term policy until age 60 or 65 would be a better option.
A Whole Life policy can also be a mechanism to fund funeral arrangements. Morbid as it may sound, more people are thinking through such responsibilities rather than leaving it to those left behind to contend with and do their best. The Whole Life policy comes with various options that you should consider. There can be a simple life cover without any bonus — called a non-participating or non-par policy. On the other hand, a participating policy partakes of the profits the company makes on investing the premium collected under the policy and offers you a share of it as a bonus.
The policy can also be unit-linked. This denotes that the policy premium is invested in the capital markets and the investment risk is yours. There would be portfolio options to choose from, appropriate to your risk appetite.
A Whole Life policy can also have riders and some examples are Accidental Death Benefit, Terminal Illness, Critical Illness and Permanent Disability. A rider is an additional cover that can be purchased with the main policy and, only at the time of buying the main policy. That coverage comes at a lower cost than it would otherwise, by virtue of the fact that it is an add-on cover.
Loans possible
Another benefit of Whole Life policy over Term policy is that a policy loan can be taken as there is a surrender value.
A Term policy, on the other hand, serves as a better tool for backing up a housing loan, protecting the family from loan repayment should the bread-winner die.
Some policies also allow the death benefit to be given to the beneficiary as a lump sum or as a periodical payment. The policy pay out is exempt from income tax. Premium payments also attract a tax benefit under Section 80C of the Income-tax Act, 1961.
As with any insurance decision, clarity on why you want the coverage will help you decide the right policy.
(The writer is a business journalist specialising in insurance & corporate history)
