Life insurance policies can be of several types, depending on their features and the timing of their payouts. Choosing the right policy that can help you fulfil your objectives of either ensuring the financial security of your loved ones or helping you fund your long-term goals is important. This is possible when you are aware of the different types of life insurance policies and their features and benefits.
Here, we talk about two similar-sounding types of life insurance- Whole Life Insurance and Universal Life Insurance. Read on to know more about their features and benefits.
Whole Life Insurance
As the name suggests, whole life insurance policies provide coverage for the entire life (up to 100 years of age) of the policyholder. This means that the beneficiaries or nominees are paid the death benefit upon the death of the policyholder at any age. This is irrespective of the fact that the premiums were paid for a specific and predetermined period. And in case the policyholder decides to withdraw or surrender or lives beyond the age of 100, a maturity benefit is payable.
- Different types of whole life cover plans are available, with some requiring the policyholder to pay the premium for the whole tenure of the policy, while others requiring premium payment for only a specific number of years. The premiums for the latter are quite high as they are to be paid for a specific duration, with the insurance coverage for the whole life.
- The premium amount remains the same throughout the policy tenure of whole life insurance policies.
- Some insurance companies allow a policyholder to see a loan against the plan after the completion of three years.
- The death benefit is the total sum assured and is paid to the nominee if all the premiums for the policy have been duly paid.
These policies are highly suitable for people who have many dependents requiring financial security in the absence of the policyholder. These policies help a policyholder have peace of mind from knowing that their dependents will not have to worry about finances and can live a reasonable life.
Universal Life Insurance or Cash Value Life Insurance
These life insurance policies allow policyholders to choose the coverage amount and premiums according to their needs and preferences. Offering the dual advantage of life cover and savings, these policies come with a built-in savings account wherein a part of the premium paid by the policyholder is transferred. Once the amount in the savings account rises above a specific limit, the policyholder can withdraw it.
- The main feature of these policies is that the premium paid by the policyholder is split into two parts, with one being used for insurance coverage and the other going into the savings and investment accounts.
- The advantage of these policies is that the policyholders have the flexibility to choose the premium amount subject to a minimum level required for the insurance coverage. Any amount above the minimum is transferred to the savings account.
- The premium amount for these policies can be increased or decreased based on the policyholder’s health and preferences. A life insurance calculator can be used to zero in on the premium amount for achieving specific returns or building up a specific corpus.
- The growth of the fund in the savings account is dependent on the interest rate offered by the insurance company, the investments made by it, and the market conditions.
- Universal life insurance plans can be
(a) indexed wherein the cash value is dependent on the market performance or
(b) Guaranteed wherein the interest rate is fixed and the premium amount remains the same for the whole duration of the policy and
(c) Variable wherein the insurance company invests the cash value portion into a mutual fund or other investment option, which means that the interest earnings are driven by market conditions.
The choice between the two types of policies depends on the needs and the preferences of a person. The ones looking for whole life coverage and financial security for their loved ones should go for whole life insurance policies. However, the ones looking for insurance plans that offer them the flexibility to modify their premiums and insurance coverage levels should opt for universal life insurance plans. Among these two categories, several types of insurance plans can be compared for choosing the best ones.