Know The Different Types Of Life Insurances Before You Buy One!
If you are considering purchasing life insurance, one of the first decisions you will have to make is what kind of insurance policy is right for your needs. There are two broad types of life insurance: whole life and term life.
Whole life policies will cover you for the rest of your life, as long as the premium is paid, while term policies cover a set period of time until they expire. If you want permanent coverage, then whole life insurance may be the best option for you and your family.
Let’s take a look at the various types of whole life insurance policies available in the Indian financial market.
What Are The Different Types of Whole Life Insurance Plans?
Non-participating whole life insurance
A non-participating whole life insurance plan is a type of policy that will cover your entire lifetime, as long as you pay the premiums. Premiums are paid annually or monthly depending on your choice, and you will be covered till the age of 100 years.
The payout is guaranteed, and there are no bonuses to look forward to. The annual premium rate of this plan is calculated based on one’s age, gender, health status, and sum assured. If you want life coverage your whole life but don’t like market fluctuation, non-participating whole life insurance plans might be for you.
Participating whole life insurance
Insurance companies that offer participating whole life insurances distribute their profits in the form of bonuses to the policyholder. These bonuses are accumulated and added to the guaranteed cash value. It is important to note that the bonuses are not guaranteed, as they depend on the performance of the company.
However, if you have a participating whole life insurance policy and need access to cash for unexpected expenses or emergencies, you can make partial withdrawals or take out loans as needed. The premiums for this type of life insurance increase with age, although they remain fixed throughout your life so you do not need to worry about them going up further once you reach a certain age.
Indexed Whole Life Insurance
Indexed whole life insurance offers the benefits of a traditional whole life policy, with one major exception: the cash value is not based on a fixed interest rate. Instead, it is linked to an external index, such as the S&P 500.
When you choose an indexed whole life policy, you get to select which index you want your plan to be linked to. A portion of the premiums that you pay for this coverage will go into a cash-value account and will grow accordingly as the index does over time.
It’s important to note that most indexed policies come with caps and participation rates that limit how much your money can grow in any given year. While these restrictions can help protect the insurance company from market losses, they also prevent you from enjoying all of the gains from larger market increases.
Variable Whole Life Insurance
Variable life insurance is similar to whole life insurance, in that your premiums are invested. But variable whole life insurance gives you a chance to generate higher returns. You have full control over which investment options your premiums go into, providing flexibility and a wider range of potential returns.
However, variable whole life insurance does not guarantee a minimum rate of return, as with other types of permanent life insurance. So be careful with this option if you’re looking for consistency and security when it comes to storing money away for the future.
Limited Payment Whole Life Insurance
As the name suggests, limited payment whole life insurance allows you to pay a limited number of payments (usually 10 to 20 years) while receiving the same benefits as with a whole life policy.
The premiums are higher than the regular whole life insurance policies. However, it still gives you the same benefits and flexibility of paying off your premiums faster or later so that you can adjust it according to your financial situation at that time.
Modified Whole Life Insurance
Modified whole life insurance, also known as a Modified Endowment policy, is a type of life insurance policy that is designed to help a policyholder qualify for tax benefits. It is similar to whole life insurance in that it provides coverage for the entire life of the insured, and combines features of permanent and term life insurance policies.
With MECs, policyholders can borrow or withdraw funds from their account value without incurring taxes or penalties because these are classified as loans rather than withdrawals. This means you must repay these loans or else you’ll lose cover.
Reduced Paid-Up Whole Life Insurance
Reduced paid-up whole life insurance is a type of whole life insurance that involves the policyholder paying the premium for a certain period of time, say 15 years, and then the policy continues to be in effect until the insured dies. This type of policy doesn’t require any further premium payment.
Single-Payment Whole Life Insurance
A single-premium whole life insurance policy is a permanent life insurance policy and is purchased by paying the amount of the premium in one lump sum.
This type of coverage is different from a traditional whole life insurance policy, which requires that the premiums be paid on an annual basis. The one-time premium payment can be made in your name or under a trust.
When you make your single-premium payment, part of it goes toward covering your life insurance costs while the other part goes toward building up your cash value. This type of coverage typically has a higher premium than traditional policies because you are paying for it all at once with just one payment.
Different people opt for different policies based on their needs, financial goals, and priorities. There are many benefits of taking a whole life insurance policy. You get a death benefit and the cash value. Additionally, in the case of the whole life policy, you also have the option of borrowing against your cash value.
Some policies also offer dividends that give a return on your investment and are independent of market fluctuations. The best way to decide which type of insurance is best suited for your needs is to consult an expert who can guide you through the various options available depending on your income and other financial goals.