Whole-of-life assurance

When protection is required throughout your life

Whole-of-life assurance policies as the name suggests, remain in force right throughout your life. This means the insurance company will have to pay out in almost every case and premiums are therefore higher than those charged on term assurance policies.

There are different types of whole-of-life assurance policies, some offer a set payout from the outset, others are linked to investments, and the payout will depend on performance. Investment-linked policies are either unit-linked policies, linked to funds, or with-profits policies, which offer bonuses.

Whole-of-life assurance policies pay a lump sum to your estate when you die. This could be used by your family in whatever way suits them best, such as providing for an inheritance, paying for funeral costs and even forming part of an Inheritance Tax planning strategy.

Some whole-of-life assurance policies require that premiums are paid all the way up to your death. Others become paid-up at a certain age, and waive premiums from that point onwards.

Whole-of-life assurance policies can seem attractive because most (but not all) have an investment element and therefore a surrender value. If, however, you cancel the policy and cash it in you will lose your cover. Where there is an investment element,
your premiums are usually reviewed after 10 years and then every 5 years.

Whole-of-life assurance policies are also available without an investment element and with guaranteed or investment-linked premiums from some providers.

Reviews
The level of protection selected will normally be guaranteed for the first 10 years at which point it will be reviewed to see how much protection can be provided in the future. If the review shows that the same level of protection can be carried on it will be guaranteed to the next review date.

If the review reveals that the same level of protection can’t continue you’ll have two choices;

Increase your payments
Keep your payments the same and reduce your level of protection

Maximum cover
Maximum cover offers a high initial level of cover for a lower premium, until the first plan review which is normally after 10 years. The low premium is achieved because very little of your premium is kept back for investment, as most of it is used to pay for the life assurance.

After a review you may have to significantly increase your premiums to keep the same level of cover as this depends on how well the cash in the investment reserve (underlying fund) has performed.

Standard cover
This cover balances the level of life assurance with adequate investment to support the policy in later years. This maintains the original premium throughout the life of the policy. However, this relies on the value of units invested in the underlying fund growing at a certain level each year. Increased charges or poor performance of the fund could mean you’ll have to increase your monthly premium to keep the same level of cover.