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How does a whole life insurance plan work? Tax benefits, other details here

How does a whole life insurance plan work? Tax benefits, other details here

How does a whole life insurance plan work? Tax benefits, other details here
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By Anshul  Jul 23, 2020 4:40:23 PM IST (Updated)

Whole life insurance plan, a type of insurance plan, provides coverage to the policyholder for the entire life, provided the policyholder pays the premiums of policy on time.

Whole life insurance plan, a type of insurance plan, provides coverage to the policyholder for the entire life, provided the policyholder pays the premiums of policy on time. This is not the case in a regular term plan, where the coverage is limited up to the policy period only and there are no payouts if the insured outlives the policy period.

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With whole life insurance plan, insured pays a premium every year and a portion of it is used to provide protection to him. The remaining amount remains invested in the company.
"If any profit is earned, insurance companies are entitled to provide bonus on the investment amount to the policyholder," according to Policybazaar.
It guarantees the death benefits, as well as the premiums. Apart from building the cash value, the growth of the cash value is guaranteed.
According to Naval Goel, chief executive officer and founder of PolicyX, users can choose any term between 5 to 67 years or fixed-term coverage till age 99+ years in case of whole life insurance plan. The premium rate of the policy is set for the entire tenure and does not increase or decrease throughout the term period.
With the policy, the investment grows and is returned to policyholder if he chooses to withdraw. Otherwise, it lives till maturity of the plan.
"Upon death of the policyholder, insurance payout is made to the nominee.
Thus, acting as a legacy product for family," explains Goel.
Whole life insurance also leaves a tax free inheritance for children (policy nominees) in addition to the existing assets.
“Alternatively, if policyholders have designated existing assets for one heir but also want to provide for another heir, whole life insurance provides the choice,” opines Goel.
The premium, in this case, also enjoys tax exemption under section 80-C of the Income Tax Act. The maturity benefit to the policyholder or the payout paid to the nominee after the death of the policyholder is also tax free.
"These are usually recommended for those who’d like to leave a legacy behind, especially that is tax-free. However, it is advisable that to take a comprehensive look on what life goal a customer wish to fulfill, and purchase a plan accordingly," Bharat Kalsi, Chief Financial Officer, Bajaj Alliaz Life opines.
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