Insurance is defined in different ways by different people. For some insurance is something to fall back on in case of financial atrocities, for some, it is a ray of hope that their prized people/possessions will be taken care of, while for others it is mere reimbursements. In technical terms, insurance is a contract between two parties- the insurer and the insured, wherein the insured pays an X amount in X intervals to the insurer in return for financial protection for the future. Insurance can be broadly classified into life and non-life insurance. As the name says, life insurance plans cover the life of individuals while non-life insurance covers everything ranging from cars to travel. Life insurance is further classified into whole life insurance, term insurance, unit-linked insurance plans, etc.
How does a whole life insurance work?
- A classic whole life insurance policy is a vanilla plan. To start with, an individual has to decide on the coverage amount based on his future requirements. This amount should ideally be 10-12 times of this current income.
- Once the coverage amount is set, the individual has to hunt for a provider that offers the highest coverage at the lowest premium. Other elements that go into determining the right insurance provider include claim settlement ratio, riders, and other benefits offered, etc.
- After choosing the provider, the next step is applying for the plan. As soon as the application is reviewed and approved, the benefits of insurance are valid.
- The whole insurance plan remains active throughout the life span of an individual, provided that all due premiums are paid. Depending on the whole insurance plan chosen, a pre-decided amount known as the sum assured is payable to the nominee of the policyholder, in case of demise or disability.
What are the different types of whole insurance?
- Participating Whole Insurance- The feature that gives participating Whole Insurance some limelight is the fact that it pays dividends. There is no guarantee that premiums will be paid, but there is a possibility. In case the policyholder does not want to acquire dividends, this amount can be used to further expand the insurance coverage. This is sub-categorized into a level premium, limited premium, single premium, and intermediate premium whole insurance.
- Non-Participating Whole Insurance- Such plans have a level premium and face amount during the entire policy tenure. They also have low-premiums and do not pay out any dividends.
