Ch. 7: What are Benefits of Whole Life Insurance Policy?

Now that you’ve understood what a whole life insurance policy is, and how it is different from a standard term life insurance plan, let us take a look at the advantages it offers and how you can benefit from it.

Let’s dive right in!

If you’ve taken a whole life insurance policy, and you pass away while the policy is still active, your nominee will receive a death benefit. This death benefit will include the total sum assured of the policy and bonuses, if any are accumulated under the policy as per the policy conditions.

For instance, Amey, a 50-year-old married male, takes a whole life insurance policy of Rs. 1 Crore to leave behind a legacy, a parting gift for his family. His daughter’s education and his spouse’s daily needs will be met with this amount. He pays his policy premiums regularly for around 25 years and then passes away. In this case, Amey’s nominee will receive the entire Rs. 1 Crore as the death benefit.

Unlike other life insurance policies that expire after a certain time or provide a cover only for a fixed period of time, a whole life insurance policy will offer you coverage for your whole life until you pass away. This makes a whole life plan a sure-shot way of leaving a financial legacy for your family when you’re gone, as it is less likely that you'll survive such a long term.

After your whole life insurance policy completes the initial three years, i.e., it has been in force for three years continuously, you also get an option of obtaining a loan against the policy. This buffer period may vary from product to product.

So, instead of borrowing or taking a loan against your home, gold, or any other property, you can take a loan against your whole life insurance policy.

Please note, this option might not be available with all whole life insurance policies. For instance, a term whole life insurance policy does not provide the option of availing a loan against it.

In a few whole life insurance plans, a withdrawable cash value is generated while you continue to pay the policy premiums. The more premiums you’ve paid, the more cash value there will be. You can use this cash value to pay your future premiums or borrow money against it.

For instance, say you have been paying premiums of your whole life plan for many years and suddenly, your brother meets with an accident and you need some cash. In this case, you can call your insurer and ask how much cash value you can withdraw from your policy.

A few life insurance plans like term insurance plans do not pay back anything if you survive the policy term. This, however, is not the case with whole life insurance. This policy offers a guaranteed payout as a maturity benefit if you survive the entire policy term. After the policy matures, you’ll get back the policy sum assured along with any accrued bonuses. You can choose to receive the maturity benefit either as a lump-sum amount at one go or as regular income at specific intervals of time.

Some whole life insurance policies also offer an additional survival benefit in the form of periodic payments. It is payable at the end of the premium payment term.

In addition to all the above benefits, a whole life insurance policy also offers tax advantages under different sections of the Income Tax Act, 1961.

The premiums paid towards the whole life policy are tax exempted under Section 80C of the Income Tax Act, 1961 up to a limit of Rs. 1.5 Lakhs. And the payout made by the insurance company to you or your nominee is also completely exempted from tax under Section 10(10D) of the Income Tax Act, 1961.

So, this was all about the merits of a whole life insurance policy. Hope this article helped you gain enough clarity on the benefits it offers.