Find out about different pay-outs of a whole life insurance policy and pass on the knowledge to your nominee.
Whole life insurance policies as the name suggests offer coverage for your entire life, there is no term limit on such plans. As long as the premiums are paid on time and the policy is valid, your nominee will receive the benefit upon your death or if the policy matures. In whole life insurance policy policyholder is eligible to get bonus as and when declared by the company. The policy provides financial security for the whole life term of the policyholder. It also provides protection for any unforeseen financial emergency as most whole life insurance policies can be used for taking loans against the deposit of the policy with the financial institution. There are many financial benefits available in a whole life insurance policy that also stretch beyond the death benefit coverage it provides. Let’s have a look at all the financial benefit component and pay-outs.
Pay-out on death
If the policyholder dies the nominee will get the sum assured plus all the bonuses accrued to date. This will be paid in lump sum.
Pay-out on maturity
Although whole life insurance plans don’t have a maturity date as they offer coverage for life. However, some plans have the option to take the sum assured plus all the bonuses accrued in the policy after 40 years from the start of the policy provided the policyholder has reached the age of 80 years. This money can be used in old age when there is no other source of income.
Additions or supplementary benefits
Some policies come with guaranteed additions after completing a certain policy term provided the policy is in force. There are also optional benefits that can be added to the base plan for extra protection. This can include accidental death benefit rider which will provide an addition to the sum assured on death due to an accident.
Pay-out on Surrender of policy
Purchasing a whole life insurance policy is a long term commitment towards paying premium and getting coverage for entire life. However, under certain unfortunate circumstances, a policyholder may want to surrender the policy. Surrender value is given under earlier termination of policy subject to certain criteria. The policy needs to be in force for a specific term or certain number of years in order acquire the GSV (Guaranteed Surrender Value). This term can be 2 years or 3 years depending upon the insurer to insurer. The Guaranteed Surrender Value is also an aggregate of percentage of total premiums paid and percentage of accrued bonuses and accrued guaranteed additions. The policy will terminate on payment of the surrender value and no more benefits will be payable.
Pay-out in the form of Loan
You can avail loan facility with your whole life insurance policy. However, the policy will be eligible to get you loan provided it has acquired the required surrender value and subject to terms and conditions which the insurer may specify from time to time. Some of the examples of terms and conditions which an insurer may put in order to get a loan on the whole life insurance policy are:
- The age of the policyholder needs to be at least 18 years of age at the time of requesting for a loan
- The loan amount cannot exceed a specific maximum surrender value
Pay-out after attaining 100 years of age
Congratulations if you have successfully managed to live for a century. Although it is rare for people in India to live till the age of 100 but if it happens maturity benefit of the whole insurance policy will become payable. The sum assured and bonuses accrued will be paid out to the policyholder.
So, above are the examples of how pay out works in a whole life insurance policy. Tax benefits can also be availed in whole life insurance plans under Section 80C and Section 10(10D) of the Income Tax Act, 1961. You can check if your pay-out is eligible for tax benefit as per the prevailing income tax laws.