Whole life insurance plan is an insurance product that provides the policyholder with a covered benefit for life. The basic function of a Whole Life Insurance Plan is to provide a lump sum payout in the event of the death of the insured as long as the policy is in force.
With the advent of competitions and customer’s demands, life insurers begin to develop whole life insurance plans with various features to compete in the market. Such features include but are not limited to:
Whole life insurance plans are mostly limited pay term with the options of paying a single lump sum premium upfront or a regular payment term option of 5 years all the way till 99 years. The most common denominations are in the multiples of 5 at 5 years, 10 years, 15 years, 20 years and 25 years.
Almost all whole life plans in the market allow the policyholders to add in riders to their life plan in order to enhance the coverage dynamism. Policyholders are able customize their whole life insurance into a one size fits all plan that includes one or all of the following coverage in one product:
To do so, policyholders will need to top up an additional premium to include these features.
Some insurers have an annuity option feature in their whole life insurance plan where the policyholder can choose to convert them into an annuity plan, this is an excellent feature which enables the policyholders to,
First, enjoy a regular stream of income from a specific age onwards.
Second, to continue and let the plan provide a minimum amount of coverage still without requiring the insured to effectively surrender their policies.
The multiplier benefits allows the insured to multiply their sum assured anywhere from 2x to 10x until a certain age, usually until age 65 or 70. The purpose to provide an additional amount of payout when the insured is younger and has more financial commitments.
Example: Tom purchase a whole life insurance plan with 4 times multiplier till age 70 for a coverage of $50,000 sum assured for Death, Disability and Critical Illness.
Effectively, this increases Tom’s coverage amount to $200,000 on Death, Disability and Critical Illness.
Thanks to the 4 times multiplier benefit feature, should any of the three covered events strikes Tom before age 70, Tom or his beneficiary will receive a lump sum payout of $200,000 even though his basic sum assured is only $50,000.
However, if the covered event were to occur above age 70, Tom or his beneficiary will receive the $50,000 sum plus any accrued bonuses instead.
The cash value is a saving feature that is embedded in a whole life insurance policy which is also the main reason why a whole life insurance premium is much higher than term insurance.
Cash value is the invested part of the premium the policyholders pay, they are typically invested into a pot of diversified assets managed by the insurer’s in-house fund manager. There are two types of whole life plan, the participating whole life which is the most common, and the non-participating whole life plan.
The participating fund whole life insurance shares the profit of its investment with the policyholders in the form of yearly bonuses. Once paid out, the bonuses are guaranteed and accumulated throughout the policy term.
Participating whole life insurance provides a guaranteed cash value portion and a non guaranteed cash value portion typically shown in their benefit illustrations at 3.25% p.a. or 4.75% p.a., the cash value money accumulated will then be paid out to the insured’s beneficiary in addition to the sum assured in the event of the insured’s death or to the insured when he/she surrenders the policy.
Non-participating whole life insurance has guaranteed claims benefit and cash values, and as the name indicate, it does not participate in the investment profit of the insurers.
You should get a whole life insurance if you:
A significant feature of a whole life insurance is the existence of cash value. On the flipside, most term life insurance does not provide any return should the policyholder surrenders or terminates the plan. A whole life insurance plan has a savings feature which allows you to cash out at a later part of the policy term should you require it. This decision may or may not result in you forfeiting the policy.
