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Whole of life insurance, also known as whole of life assurance, provides the assurance that your chosen insurance provider will deliver a lump-sum payment to your family upon your passing, regardless of when that may occur.
What is Whole of Life Insurance?
This insurance offers lifelong coverage, ensuring your loved ones are protected for your entire life as long as you keep up with premium payments. Unlike term life insurance, which has a specified coverage period, this policy doesn’t have a predetermined term. With term life insurance, if you pass away after the policy term ends, your beneficiaries won’t receive a payout, regardless of the premiums you’ve paid. This makes lifelong coverage a more reliable option.
With a whole of life insurance policy, you pay either monthly or annual premiums. This policy remains in effect as long as you continue to make these premium payments.
You have the choice between:
- Reviewable premiums: Reviewable premiums typically start low but can be subject to periodic reviews, potentially resulting in increased payments.
- Guaranteed premiums: Guaranteed premiums may initially be more expensive but remain constant throughout the policy’s duration.
*When you pass away, your chosen beneficiaries will receive the promised pay out. Some whole of life policies require premium payments for a fixed number of years or until a specified age, such as 90. After this period ends, you remain covered, but no further premium payments are necessary.
How much does a Whole Of Life Insurance cost?
Whole of life insurance typically commands a higher premium than term coverage, given the certainty of an eventual payout. Various factors influence the cost of your premium, such as your:
- Age: Starting the policy at a younger age generally results in a more affordable premium.
- Desired Coverage Level: The higher the pay out you desire for your beneficiaries, the greater the premium.
- Medical History: Existing health conditions can impact your premium.
- Lifestyle: Certain lifestyle choices, like smoking, may raise your premium.
- Occupation: Your occupation, particularly if you’re still actively working, can influence the premium amount.
It’s essential to consider whether you can manage premium payments after retirement, as they must continue until your passing or an advanced age.
* Potential Pay out Amount:
The exact pay out your beneficiaries will receive depends on the specifics of your policy. If you opt for a with-profits or unit-linked policy, the pay out can fluctuate based on the performance of the underlying investments.
A whole of life policy can prove valuable if you:
- Wish to provide your family with a lump-sum payout upon your passing.
- Seek a payout that can assist in covering inheritance tax obligations.
- Desire coverage for funeral costs, legacy planning, or supplementing a partner's lost pension.
- Are prepared to pay potentially substantial premiums, which could increase in the future.
However, if you primarily require coverage for a defined period, a term life insurance policy may be more suitable. When contemplating a whole of life policy, it’s wise to consult a financial advisor to ensure it aligns with your needs. They can also elucidate the associated investment risks and potential payout variations.
Types of Whole of Life Policies.
Whole of life insurance comes in three primary forms:
Over 50s Guaranteed Acceptance Cover:
Tailored for individuals aged 50 and over. This coverage doesn't involve health-related inquiries. All applicants are accepted. It can be advantageous for those with existing health conditions or those seeking coverage for funeral expenses. There may be a waiting period of 12 to 24 months before full coverage takes effect.
Whole of Life Pure Protection:
This lifelong coverage involves a review of your medical history during the application process, making it suitable for individuals in good health.
Whole of Life Investment-Linked:
Investment-linked policies come in two varieties. With-profits policies involve insurance providers investing your premiums with the goal of generating returns sufficient to cover the eventual payout. Unit-linked policies grant you the freedom to select the investment funds associated with your premiums.
Yes, you can. A joint life insurance policy covers two individuals and provides a single payout after the first person’s passing, leaving the surviving individual uninsured. While joint policies may have lower premiums than two separate single policies, it’s essential to evaluate whether separate life insurance policies might better suit your specific circumstances.
While it’s possible to find whole of life insurance even with pre-existing medical conditions, it may result in higher premiums, with fewer providers willing to extend coverage. If you are over 50 and have health concerns, over 50s life cover guarantees acceptance, regardless of your health status. However, there’s typically a 12 to 24-month waiting period before you can make a claim, during which the provider will refund your premiums if you pass away. Always be forthright about your health and lifestyle when applying for life insurance to avoid policy cancellation should important health information be discovered later.
Certain investment-linked policies allow early cashing in for a reduced payout before your demise. However, this may incur substantial charges and penalties, potentially resulting in a payout less than your total premiums paid. Thoroughly examine the policy’s terms and conditions to comprehend the potential financial impact of early cashing in.
Assuming your cause of death adheres to the policy’s terms and conditions, and you’ve provided accurate information during the application process while maintaining premium payments, the payout should be guaranteed.
Note: It’s crucial to review the covered causes of death, as insurance providers have their unique terms, exclusions, and limitations. Example – deaths resulting from alcohol or drug abuse are not covered.
When your family receives a lump-sum payout after your passing, they are not subject to capital gains tax or income tax on the sum.
*However, if the total value of your estate surpasses inheritance tax thresholds, a 40% inheritance tax may apply. Placing the policy in trust can safeguard the life insurance payout from inheritance tax.
With-Profits Policy: With-profits policies are a type of life insurance or investment policy that typically includes both a guaranteed sum assured and bonuses. The bonuses are not guaranteed and depend on the performance of a with-profits fund managed by the insurance company. The aim of a with-profits policy is to provide policyholders with a smoothed return on their investment. This means that in years of good performance, some of the investment gains are held back to boost returns in years of poor performance. It’s a way to provide stability and reduce the impact of market fluctuations on policyholders.
Unit-Linked Policy: A unit-linked policy, on the other hand, is a type of life insurance or investment policy where the premiums paid are invested in specific investment funds, often chosen by the policyholder. The policy’s value is directly linked to the performance of these underlying investment funds. As a result, the value of a unit-linked policy can go up or down based on the performance of the chosen investments. This type of policy offers more transparency and control over investment choices but comes with the risk of market fluctuations.
The main difference between these two types of policies is how the policy’s value or bonuses are determined. With-profits policies aim to provide a smoother, more stable return, while unit-linked policies are directly tied to the performance of selected investments, and the value can vary with market conditions. Policyholders should carefully consider their risk tolerance and investment goals when choosing between these options.
