Amrita Chauhan, TNN
Article from The Economic Times
The choice of policy depends on what stage of life one is at. While a term policy provides cover only against death within a specified period, for some individuals, a certain payout may be necessary. This is where whole life and endowment policies make sense. These policies have an investment element and most give a surrender or cash value. A whole life policy pays out on death of the life assured while an endowment policy pays out on the maturity date or death, whichever is earlier.
For individuals who are not sure of which policy to take at the beginning of their career, LIC's Convertible Whole Life Policy could be useful. The policyholder has the option of converting the whole life policy into an endowment policy 'with' or 'without profits' after five years. If the policy is for a guaranteed sum only, then the policy is called without-profit and if the final sum is linked to the investment performance then that policy is a with-profits policy.
Convertible Whole Life Policy is flexible and is suitable for young individuals who are starting their careers. Since the premium for the whole life policy is lesser, it is more convenient for the young to take an insurance cover. And since with age the income of the individual is expected to go up and along with that the responsibilities, there is an option of availing an endowment assurance for a period of one's choice at a slightly higher premium.
The individual can take a whole life without-profit policy. After five years from the commencement of the policy and assuming regular premiums were paid, the policyholder has the option of converting this policy into an endowment policy, with or without profits and without a fresh medical examination. However, the premium will get enhanced accordingly from the date of conversion.
Another feature of this policy is that the policyholder can decide the policy's maturity at the time of conversion. The individual can assess the level of responsibility and take into consideration the income level and then decide the maturity. There is no compulsion to convert the policy and the individual can continue the policy as a whole life with profits.
