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Whole of Life

Whole of Life

Whole of Life Policies

A whole of life policy is another policy which does exactly as it says. It covers you for the whole of your life. When the inevitable happens, providing the policy is still in force, it will pay out a death benefit. Although they can provide a surrender value, they should not be used for investment purposes due to the deductions made for the death benefit.

As payment of the benefit is inevitable Whole of Life policies tend to be more expensive than Term Assurance policies for the same level of cover (it depends on what age you are when you start the plan). Each premium is made up of a mortality element and a savings element. Upon death, a fixed sum is paid to the beneficiary along with the balance of the savings account. The performance of the underlying investment fund for Whole of Life Plans is important, as the cost of future premiums depends on fund performance.

These policies come in various forms:

  • Non-profit whole life policies – A level premium payable throughout life. It pays a fixed cash sum at the time of death.
  • With profit whole life policies – Same as non-profit policies but the amount paid on death is the sum assured plus whatever profits have been allocated.
  • Low cost whole life policies – These have a guaranteed level of cover that the amount payable on death is the greater of the basic sum plus bonuses or the guaranteed death sum assured.
  • Unit linked whole life policies – The monthly premium is used to buy units in a selected fund, with some of these units then being cancelled to pay for the cost of the life cover and the remainder being invested. Three variants of this policy are available depending on the ratio of premium used to provide cover and premium used for investment
    • maximum cover – provides only a minimal investment element and, as a result, when the policy performance is reviewed, as it is at regular intervals, the premium is often increased or the cover reduced.
    • minimum cover – The opposite of maximum cover with the majority of the premium being used for investment and only a low level of life cover being provided.
    • standard or balanced cover – sitting between the above options, this is intended to provide cover indefinitely with no increase in premiums required assuming the investment grows at the predicted level, which, of course, cannot be guaranteed as this depends on the fund performance and the value of the investments could go down.

If you are worried about investment risk and increasing premiums, there are Whole of Life policies available which do not rely on fund performance, however, these do not acquire a surrender value.

Please be aware that this type of assurance is based on an assessment of the health of the applicant.