Types Of Whole Life Insurance Policies

If you are looking for a life insurance policy that will provide lifelong financial security to your loved ones and help you leave a financial legacy for them, a Whole Life Insurance Policy is a good option to consider. It is an insurance policy that practically covers you for your entire lifetime (up to the age of 99/100 years). It will pay a fixed sum to you if you survive till the end of the policy period, and if you don’t, it will pay a fixed amount to your nominee.

Now, when you set out to purchase a Whole Life Insurance Plan, you will come across a variety of options. In this article, let’s take a look at the types of Whole Life Insurance Plans available in the market today.

Let’s dive right in!
 

Types Of Whole Life Insurance Policies

Whole Life Insurance Plans are classified based on the premium payment term, returns, and nature.

Let’s learn in detail about each of these types.

1. Single Payment Whole Life Insurance Policy

   A Single Payment Whole Life Insurance Plan requires you to pay the entire premium amount in one go, as a lump sum. You only have to pay the premium once, when you purchase the policy, and you can enjoy the benefits for the remaining period.

   One significant advantage of purchasing this type of Whole Life Plan is that because the entire premium payment is made at once, the policy generates an immediate cash value that you can borrow against. There is one disadvantage of investing in this plan as well - you will be charged significant fees if you surrender the policy during the first few years.

   Example:

   Mohit buys a Single Payment Whole Life Plan that will offer coverage up to the age of 99 years. He chooses a sum assured of Rs. 30 Lakhs and since it’s a single payment plan, he will have to make the entire premium payment at the time of purchase. The policy will offer financial protection to his family until the end of the duration.

   Let’s say in the 40th policy year, Mohit passes away due to a heart attack. The insurer will pay the sum assured of Rs. 30 Lakhs to his nominee and the policy will end.

2. Limited Payment Whole Life Insurance Policy

   As the name implies, you need to make premium payments for a limited number of years under this type. You can pay your premiums in bigger and quicker installments and get the premium-paying liability off your chest quickly.

   The premium payable under this plan may be higher than the other types (but lesser than single pay) because it allows you to shorten your premium payment tenure.

   Example:

   Rahul buys a Limited Payment Whole Life Insurance Policy up to the age of 99 years. He chooses a premium payment duration of 20 years and a cover amount of Rs. 50 Lakhs. So, Rahul can finish paying off his policy’s premiums in the next 20 years - and enjoy the cover for the remaining duration.

   Let’s say Rahul passes away in the 25th policy year in an accident. In this case, the insurance company will pay the sum assured to his nominee and the policy will terminate.

3. Regular Payment Whole Life Insurance Policy

   The two plans we discussed above allow you to complete your premium paying liability faster compared to the policy duration. A Regular Payment Whole Life Policy, however, requires you to pay your premiums throughout the policy period until you’re alive. This means you will have to pay premiums under this plan way beyond your retirement age.

   Example:

   Mohini buys a Regular Payment Whole Life Plan that will cover her up to the age of 100 years. She opts for a sum assured of Rs. 40 Lakhs and chooses the semi-annual premium payment method. This means she will have to keep paying the premiums twice each year for the rest of her life.

   Let’s say Mohini survives till the age of 100 years. In this case, the insurance company will pay the maturity benefit of Rs. 40 Lakhs to her, and the policy will end.

4. Participating Whole Life Insurance Policy

   This type, as the name suggests, allows you to 'participate' in the insurance company's profits. Basically, every insurance company periodically declares a share that it will pay to its customers in the form of bonuses, dividends, etc.

   So, along with the fixed death or maturity benefits, you or your nominee will also receive bonuses if you buy a Participating Whole Life Insurance Policy. Keep in mind that it is not guaranteed that you or your nominee will get the bonuses, dividends, etc. - as they depend on the performance of the insurance company.

   Example:

   Esha buys a Participating Whole Life Insurance Policy that offers coverage up to the age of 99 years. She chooses a cover amount of Rs. 45 Lakhs and a 10-pay limited payment option. She will have to pay the premiums of the policy in the next 10 years and she will be covered for the remaining duration.

   In the 15th policy year, Esha passes away. Let’s say a bonus of Rs. 50,000 is accumulated under her policy up to the date of her death. So, the insurance company will pay Rs. 45,50,000 (death benefit of Rs. 45 Lakhs + bonus of Rs. 50,000) to her nominee.

5. Non-Participating Whole Life Insurance Policy

   This plan is the exact opposite of the above plan. Here, you don't get an opportunity to participate in the insurance company's profits. So, there is no bonus, dividend, etc. payable under a Non-Participating Whole Life Insurance Policy.

   Under this type, you will receive a maturity benefit, i.e., a fixed sum of money if you survive the policy's tenure. And in case you don't, your nominee will receive a death benefit, i.e., a fixed amount of money.

   Example:

   Narayan buys a Non-Participating Whole Life Insurance Policy that will cover him up to the age of 100 years. He opts for a sum assured of Rs. 25 Lakhs and a 15-pay limited payment option. So, he can finish paying his premiums in 15 years and enjoy the cover for the rest of his life.

   Let’s say Narayan passes away in the 50th policy year. Since it’s a Non-Participating Policy, the insurance company will only pay the sum assured of Rs. 25 Lakhs to Narayan’s nominee - there won’t be any bonuses payable.

So, these are the types of Whole Life Insurance Plans available in the market today. You can choose the type of policy that fits your needs and goals the best. However, before you go ahead with the purchase, ensure you’re completely aware of how the plan works, to avoid any hassles in the future.