Whole-of-Life Insurance

Whole-of-life insurance (or Whole-of-life assurance) has no fixed period of time,
so is guaranteed to pay out when you die provided your premium payments
have been met.

Whole-of-life insurance differs from term insurance which pays out a regular income or pays out a lump sum upon death if it occurs during the policy term.

Life insurance provides for your children, partner and relatives who
may rely upon your income to pay for the mortgage and other expenses,
in the event of your death.

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Know The Real Cost

Due to its guarantee of a payout, whole-of-life insurance requires higher premiums than term insurance. It is important to evaluate the greater cost implication, and to be aware that you could still be contributing to the policy into old age.

Always Check The Small Print

Whole-of-life insurance policies are offered by brokers in a variety of forms, so you should always read the small print of any policy and make sure you understand what it says, to ensure you get exactly what you expect.

Fixed Premiums & Fixed Payouts

There are whole-of-life policies that fix the amount of premiums you pay in order to receive a fixed amount. This means you can you have more scope to control your costs and still have the benefit of receiving a payout.

Age-Related Fixed Premiums 

Other whole-of-life policies require fixed premiums up to a particular age such as 60, 65 or 70. After the stipulated age the policy continues but there is no need to pay, which may beneficial especially if you have retired. 

Investment Linked Plans

The majority of whole-of-life policies are linked to an investment fund, which fixes the premiums and assured payout for 10 years. After this time period the policy is frequently appraised. If the policy is linked to under-performing investments, the insurance company may increase the premiums or decrease the assured payout.

 
Therefore the policy could become too costly or insufficient to provide for your dependants.

Types of Whole-of-Life Insurance

The two main types of whole of life insurance are standard cover and maximum cover.

Standard Cover (or Balanced Cover)

Standard Cover is the most popular as the idea is to keep the premium fixed – however, this is not guaranteed. Standard Cover sets a premium to be paid from the outset which is enough to ensure that the premium always remains the same throughout the policy. Some of the premium paid into the policy is invested into the fund to provide extra coverage as you get older.

Typically, you will be able to decide how much of the premium is invested in the fund, which will influence the premium rate and any risk of a future change in the premium.

Maximum Cover

Maximum cover is a policy which is typically less costly at the start as most of the premium goes into the policy rather than being invested into the fund. Although, after a time period of years (stated in the policy), the insurer can reappraise your policy and may increase the premium if your risk is deemed to be greater.
Thus a maximum cover policy is almost certain to demand higher premiums as you get older. It is also possible that the insurer will keep your premium the same, but the amount of cover will decline.

Factors Influencing The Premium

Health

Insurers offer preferential premiums to those who live longer as they are likely to pay more. A healthy lifestyle without too much drinking and no smoking is more attractive to the insurer.

Age

Policies cost less for those who are younger.

Medical Record

Cover could be difficult to obtain if you have a medical condition or any condition which could reduce your life span.

Comparison of Plans

Comparing the policies on offer from a range of providers is an effective way of keeping the cost down.

Surrendering The Policy

It is usually possible to cash in the whole-of-life cover if it is no longer required. However, this ‘surrender value’ is typically far less than the premiums paid, especially if it is cashed in within the initial years of the policy. 

Policies ‘Written In Trust’

Whole-of-life insurance payouts are not normally subject to income or capital gains tax. However, there may be inheritance tax for you family to pay, so you will need to write the policy ‘in trust’. This ensures that the money will be part of the trust and separate from your estate when you die, thereby avoiding any inheritance tax bill.