What is whole life insurance?

Unlike what has been stated in the earlier sections about term assurance whole of life insurance is totally different.

You may or may not be aware already, most life insurance is term based ie. you specify a term you want the plan to run for.

Whole life insurance is totally different to this in so much that you have this plan for the whole of your life it is not written with any term specified at all, it will just run until the day you die at which point your estate has a claim on the plan.

So why doesn't everyone have whole of life insurance cover?

Why settle for Term when you may not die during that term?

What would whole of life insurance be used for?

These are very good questions and by answering them we should be able to give you a more comprehensive insight into the whole of life insurance product and more importantly the knowledge to ascertain whether the product is for you and your particular financial situation.

So why doesn't everyone have whole of life insurance cover? This is a two part answer the simple part being that in a lot of occasions were people require life insurance they only need that insurance for a specified period of time for example the life of a mortgage. As such it would be completely inappropriate to take out a whole of life contract for a term based need as the contract would outrun the proposed need and then potentially become unsuitable for purpose.

The other reason is the main one and that is cost. Whole of life insurance is, or can be, a great deal more expensive than the same sum assured term assurance. This is due to the fact that it will run for the whole of your life and as such subject to premiums being maintained will pay out. The contrast to this is term and term might not pay out, it will only pay out if you die during the term and that is not guaranteed.

Another impact on the cost element in the plan, other than the cost of the life insurance, is in a lot of whole of life insurance contract there is an investment element within the plan. This investment element can and is very small and you must always bear in mind that a whole of life contract is designed to provide life insurance and not operate as any type of savings plan or investment vehicle.

Owing to the fact that whole of life insurance is guaranteed to pay out at some point in the future the life insurance company needs to ensure that they raise enough premiums to cover any eventual payout. This results in higher overall premiums. There are ways that costs can be reduced, such as maxi cover options and minimum premiums basis. These options give the policy holder the benefit of reduced premiums in the early years for example the first ten years. At the ten year point the premiums are reviewed in an upward direction. The consequence of this is premiums do rise sharply at the ten year point and if there is any investment element in the plan this is greatly reduced if not wiped out altogether. But it has to be said that these options only put off the inevitable fact that the cover has to be paid for and as such the costs will increase in the future and will probably be even higher than what it would have been on a level premium basis.

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Why settle for Term when you may not die during that term? As stated above this is due either to the fact that there is a term based need for the plan and therefor4e you don't actually need whole of life insurance cover or it is the more simple problem effecting most people and that is cost. There is insufficient monies available to cover a whole of life premium and therefore term assurance is an option better than no cover at all.

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What would whole of life insurance be used for? Whole of life insurance has many uses not least for good family protection. Clients just have the plan running for the whole of their life while they are you it is an effective vehicle to protect there families and loved ones as they get older it is there to protect there spouses to ensure there is sufficient monies to maintain their standard of living and when they are retired it may be there to ensure funeral expenses are covered or just to ensure that there is some money for the children or grandchildren to inherit.

Whole life insurance is also a very effective vehicle for inheritance tax planning. If you are a couple you can arrange a whole of life contract on a joint life second death basis to ensure that there is enough money to pay any inheritance tax bill that will be come due once you have passed away and this just makes sure that any inheritance you have intended to be passed down through the generations stays in tact and is not dwindled away by the tax man. In order to effectively use any life insurance contract as a suitable IHT protection product you should always discuss writing the plan into trust. This makes sure that any money aimed at repaying any resulting tax bill due on an estate is given to the right person at the right time. A life insurance policy not written in trust just forms part of an estate and by its very existence can and will increase the estates value and therefore the resulting tax bill. For more information on this matter and effective tax planning please click the contact us tab on the upper left and one of our specialist advisors will be happy to assist you further.

 
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