Life is uncertain and we try everything we can to minimise this uncertainty. Every day, we are exposed to countless risks of death and disability due to natural and accidental forces. We try not to talk about the inevitable - talking about the eventuality of death forces us to confront the transience of life. But it is important to stay prepared for all uncertainties like death, disability, accident, etc. If something were to happen to you, how will your family deal with it? The loss of life has massive emotional consequences, but it also has implications for the lifestyle of your family and everyone you leave behind. One way you can make provision for the well-being of your family and dependents is by buying term life insurance.
The rationale behind term insurance as a financial product is to ensure that your family does not have to suffer financial hardship if something happens to the breadwinner in the family. Life insurance term plans provide complete protection and financial stability to your loved ones in case of any unforeseen events.
Any financial loss coming their way due to the loss of the earning member of the family is alleviated by the amount received by the beneficiaries under the term insurance policy. At an affordable price paid in the form of term insurance premium, a reasonable financial shield can be provided to your kids, dependents and family. This brings us to the question of the ‘term’ or duration of a term plan.
How long do you want to extend the financial protection to your family?
To answer this, we have another question - why wouldn’t you want to extend a financial cover for your family for the maximum possible tenure, if it was possible? The entire premise of term insurance is that you should be able to provide for your family even in your absence. Today, few term life insurance plans provide coverage for as long as 99 years of age. First of all, you need to be adequately insured till the time you are earning. Secondly, your family should have a financial cushion to fall back on, for as long as they can. Your family’s standard of living, your children’s marriage or dreams for higher education, the regular household expenses can all be taken care of with a plan that extends adequate cover.
A Whole Life Term Plan provides exactly that. Let us explore this plan in detail:
What is a Whole Life Term Plan?
A whole life term insurance policy provides financial protection to your dependents in the form of guaranteed pay-out upon the happening of an unfortunate event listed in the policy. A Whole Life term insurance plan can extend up to the age of 99 years. Today, this variant is the longest possible shield for your beneficiaries.
What does a coverage till the age of 99 years exactly mean? The term insurance is applicable until you reach this age. For example, if you buy the term life insurance policy when you turn 30 and opt for this cover under your policy, this would mean that the policy will give you 69 years of protection.
The idea is that this financial cover should stay as long as possible, especially as long as your kids and other dependents don’t become self-reliant.
Benefits of Whole Life Term Plan
Term plans, as the name suggests, exist for a particular period of time. In the case of Whole Life Term Insurance, this specified period of time can be stretched as far as till 99 years of age. The exact working is simple: you pay a term insurance premium - often an affordable, monthly payment made towards the insurance plan to keep it going. If and when the unfortunate event occurs, that is the policyholder’s untimely demise, the beneficiaries/nominees would receive the agreed sum assured under the plan.
The first and foremost benefit of a term insurance plan is that it brings you peace of mind. With a robust life insurance plan in place, you don’t have to worry about how your family is going to survive financially in your absence. The loss of a loved one can be emotionally taxing enough, so term life insurance can help reduce the financial risk that may arise. Upon the death of the policyholder, the nominee will be in receipt of a lump sum amount (the amount of the whole term plan) and this amount could take care of their immediate expenses, future plans as well as uphold their standard of living.
The functional benefit of a whole life term plan is the affordability factor. These are pure life insurance products that provide an unquestioned financial backup, i.e. an extended life-cover at reasonable premium. There is considerable flexibility in the process of getting a whole term insurance plan. How? One, you can decide how much cover you want to get. This amount should reflect an amount that will suffice for your family and their needs. Apart from the daily expenses, take into account various impending expenses towards higher education, marriage etc. of your kids. Also account for the standard of living of your family. You wouldn’t want them to compromise on how they live their lives in your absence. It is important that this cover is adequate to meet not just the expenses but also factor in inflation.
Another benefit of this flexibility is in the frequency at which you decide to pay the premium amount. You can choose to make this payment at regular intervals - whether monthly, quarterly or yearly is up to you.
One other major term insurance benefits are the term insurance tax benefits that are applicable in accordance with the Income Tax Act, 1961, including deductions allowed on the premium amounts paid and the exemption on the death benefit/ maturity benefit/ surrender benefit amount received under the policy. Under Section 80C of the said Act, the policyholder can avail tax benefits on the premium paid towards life insurance plans. This can be claimed as a deduction from the taxable income for the year. Such deduction is subject to a maximum limit of Rs. 1.5 lakh.
Under Section 10(10D), there is provision for tax exemption on the death/maturity/surrender benefit amount. More specifically, the amount of sum assured under the policy, plus any bonus paid on maturity or surrender of policy or on the death of the assured life - this combined amount is completely tax-free in the hands of the receiver, subject to provisions stated therein. Finally, there are optional riders that can be added to your life insurance policy to extend the cover under the policy. Riders refer to additional covers that can be layered on to the base cover with a specific event or aim in mind. Like, the accidental death benefit would mean that you pay an additional premium in return for which the possibility of death by accident is covered. This cover is over and above the sum assured received under the policy. Other rider covers include Accidental Permanent Total/Partial Disability Benefit rider, Critical Illness benefit rider and Waiver of Premium Benefit rider, for comprehensive coverage.
Why are riders beneficial? They allow you to customise your life insurance policy in tandem with your needs, at a nominal extra premium. This means you wouldn’t have to make separate provisions for a situation where an accident leaves you permanently disabled. It is going to be a trying time for you anyway, so riders can at least help financially during such situations.
Why you should go for a Whole life term Plan?
We have just gone over the term insurance benefits. It all sounds hunky-dory if you just draw a term insurance plan, but the question arises: why should one go for a whole life insurance plan?
It is a common practice to assume that logically term insurance can only be useful until the golden age of retirement. In most cases, this age falls in the bracket of 55 to 65 years of age. However, this misconception should be dispelled. Nowadays, term insurance policies provide the option of extended cover up to 99 years of age. This cover is, without doubt, more comprehensive in its protection.
Under certain situations, it is indubitably a better exercise to have an extended cover rather than stopping your term insurance at 65 years of age or upon reaching the standard retirement age. There are a few term plans available in the market that provides for life cover that lasts up to the age of 99 years.
Let’s closely examine the benefits that a whole life term plan brings:
• Lifestyles are changing, the economy is changing and the employment patterns are no longer the same as 20 years ago. So people often find themselves struggling even after they have crossed their retirement age. It is not uncommon to find people working at the age of 60 or 65 because they always feel like the savings are inadequate. In fact, a report by the World Economic Forum1 suggests that people living countries like the US, UK, Japan, Netherlands, Canada, Australia, China and India are facing a huge gap in their savings, the amount of which is estimated at $428 trillion by 2050. And these are economies that are still considered flourishing! The bottom line? No amount of saving suffices!
• More and more people are settling later in life. This means, for one, that they are still in debt when they reach the golden years. There are home loans to be paid, expenses to be taken care of even after you have entered the sixth decade of your life. The result? They seek financial protection beyond just the young earning years. This is where Whole Life Term Insurance can prove beneficial. Your beneficiaries will be able to take care of their immediate expenses at any time.
• On the same lines, people settling at later ages also implies that they are having kids later than the previous generations. It is quite possible that the kids are still young (possibly even younger than 18 years) and therefore, still dependent on you and your income. Even after hitting the golden age, you may have dependents. At the current rate of inflation, your existing assets, deposits and investments may not suffice to be able to meet the demands and costs of say, your children's education. A whole life term insurance plan will eliminate the financial blow associated with the risk of death and disability.
• If you look at your financial investments (life insurance included) as a legacy for your future generations, meaning you want to leave them with an abundance of resources, then you should look at life insurance as a valuable instrument in your financial portfolio. It is the first resource that will help your family and dependents when you are gone. This parting gift is just as relevant after the ages of 60-65 as it is before.
• Life insurance term plans that provide extended cover may also provide cover for critical illnesses. The financial toll that a critical illness diagnosis can take on you is limitless. And a critical illness can strike anyone at any age. Hence look for a plan that gives you a 360 degree cover protection to ensure your mind is at peace from the uncertainties of life.
It makes a lot of sense to take a term insurance cover to stay financially protected against contingencies till the age of 99. When you have this option, it is advisable to avail it to ensure your family is secured and protected!