Whole of Life Policy

As the name suggests, whole life assurance can provide life cover without imposing a limited term. Similar in nature to term assurance, these policies potentially provide cover for the whole of the persons life and is therefore more expensive than term assurance.

Whole of Life Policy Types

There are three types of Whole of Life Policies

  • With-profits
  • Unit-linked
  • Low cost

With Profits Whole of Life Cover

Policies that are with-profits give the person insured the extra benefit of a bonus that is a share of the profits from the funds that the premiums have been invested in.
A with-profits whole of life policy gives wider cover than term assurance for your dependants, because they are protected financially no matter when you die. The policy’s suitable for families with a single breadwinner, where one partner gives up work permanently to bring up children. It could also be taken out once the children have left home, to safeguard a couple’s standard of living should one of them die.

You decide in advance the minimum guaranteed payment you want your family to receive when you die. Annual bonuses may then be added to this minimum sum assured from the profits the insurance company makes from its with-profits fund. Once these bonuses are added, provided that all premiums are paid when they are due, they cannot be removed or reduced. The level of bonus is based on their investment performance and their expenses.

Unit Linked Whole of Life Cover

A unit-linked plan allows the premiums to be kept lower as they are based on the expectation of some future growth. The unit values though, can fall as well as rise.
It gives cover over the whole of a person’s life and carries the option of different levels of cover and as a result, premiums can be flexible and altered to suit circumstances. The minimum level of cover will require a smaller percentage of the premium to provide the life cover, leaving a larger amount in the fund to grow. The maximum cover will use a lot more of the premium leaving less invested in the fund. Standard cover is between minimum and maximum and if standard cover is chosen, it should be maintained indefinitely with no increase in the premiums required assuming the investments chosen grow at the necessary level. The growth rate required will vary depending on the chosen provider.

This type of policy can be linked to one or more funds and there may be future benefits, other than death benefits, that may be available. The policyholder can obtain high levels of cover at a very low cost and charges are clearly laid out so that you know what you are paying for.
Unit-linked policies can be written on a joint life basis on either a first death, where a cash sum is paid when the first assured dies, or on a second death, where a cash sum is paid in the death of the survivor. Also, there is normally a guaranteed minimum period under maximum cover before the sum assured is reviewed to see if it has been affected by investment performance.

However, if the life cover has been selected on the maximum cover basis and the investment performance has not been high enough, it may be necessary to increase the premium for the following period or to accept a lower level of cover for the same review period and this can apply on the standard cover basis. Also, the value of the units on the fund can fall as well as rise, thus the surrender value on the policy will fluctuate.

Low Cost Whole of Life Assurance

This is a combination of a with-profits whole of life with decreasing term assurance. It is an attractive alternative to the with-profits and unit-linked whole of life policies for some individuals because the cost of providing the required level of cover is significantly lower.

The sum assured on death is free from income tax and the policy is designed to provide level life cover for the lifetime of the person(s) assured. Again it can be written on a joint life basis like with the unit-linked and the with-profits.

These plans may have cash in value although they may be subject to surrender penalties. There is no guarantee of the value you could receive.

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