Whole of Life

This type of insurance, as the name suggests, insures a persons life for the whole of their life, so eventually the policy will pay out. This type of policy is much more complicated than term assurance or family income benefit because part of the premium paid is invested to pay for the future cost of the policy.

As there is an investment associated with this policy there is a risk that the investment will underperform, in which case the sum assured may not be sustainable. For this reason the policy provider will review the policy every 5 or 10 years and will inform the policyholder at each review whether or not the premium must be increased to maintain cover until the next review date. Alternatively, there will be the option to reduce the sum assured and maintain the premium at the current level.

When setting up the plan you must choose a fund in which to invest your premiums. The choice of funds is very diverse and can range from low to high risk. Choosing a fund is very important and requires careful consideration as it will have an impact on the premium and future benefits of the plan.

The premium paid is determined primarily by your age, sex and health. It will also be set according to the investment return that is expected over the life of the plan. Typically, you will be given 3 options; minimum, balanced and maximum. 'Maximum' has the lowest premium but the plan is expected to achieve a higher rate of return to sustain the level of cover - there is a greater chance that the plan will suffer a negative review and the sum assured may have to be decreased or the premium increased to maintain cover. 'Minimum' has the highest premium and the lowest reliance on investment returns - it is less likely that the plan will suffer a negative review but it cannot be ruled out. Balanced sits between minimum and maximum.

Whole of Life policies can be arranged on a single or joint life basis and can include critical illness benefit if chosen from the outset. The policy can only pay out on one event so if insurance is required in the vent of both lives assured dyeing then you should set the plan up on a single life basis.

Why consider Whole of Life?

The most common reason for arranging a Whole of Life policy is to cover an inheritance tax liability when the liability may result in an a particular asset having to be sold. For example, it is not uncommon for the family home to make up the majority of an estate and if the value of the home triggers an IHT liability on death then the home may have to be sold to pay the tax. Rather than sell the home a whole of life policy will provide the proceeds to pay the tax and retain the home.

Another common reason is when one person provides the majority of retirement income and there is little income provision for a dependant or spouse when that person dies. In this situation a whole of life policy can provide a lump sum which could be invested to provide an income following the death of the life assured.