Whole of life insurance
Some insurers offer life policies that insure you for your whole life, or for as long as you want to keep paying premiums. The cost of these policies is higher than with basic term life insurance and can increase at regular intervals.
How long does the policy last?
You can decide to pay premiums up to your death or for a specified time, for instance until you are 65. In most cases your insurer will review your premiums and increase them every so often, typically every 10 years.
Following a review, your premium could increase significantly and you may not be able to afford it. If this happens, you may have to accept a reduction in policy benefits. It’s important to consider this before you take out this type of policy.
There are various types of whole-of-life policies, but the most common is a unit-linked whole-of-life policy. With this type of policy, the life assurance company invests your premium in a fund. They manage the fund so that it is expected to grow at a certain rate and to increase in value over time.
The fund value is not guaranteed. It may grow by enough to pay for your life insurance throughout your life. Or, in some cases, it may fall short of the amount needed to pay for your life insurance. In that case, you may have to pay a higher premium to keep the sum assured at the agreed level.
You can also get a policy where your premium is fixed and your benefit is set at an agreed level. You will generally pay more throughout the period of cover for this type of fixed-premium whole-of-life policy than for one where the premium is not fixed.
Whole-of-life policies have ongoing charges, such as yearly charges for managing the investment fund and sometimes monthly charges for handling your premium. However, the effect of these charges is taken into account when your premium is set. Ask your provider for a full list of charges.
Can you build up savings in your whole-of-life policy?
Even though a unit-linked whole-of-life policy allows you to build up a cash lump sum over and above what is needed to pay for your life insurance, this usually only happens if the fund performs much better than expected. You will generally find the policy would have little or no cash value at any time. It is preferable to have separate savings plans in addition to your life policy.
What happens if you stop paying premiums?
If you stop paying premiums into a unit-linked whole-of-life policy, it will not lapse immediately, unlike a term life policy. However, the life insurance company will continue to take charges out of the value of your fund, until it no longer has any value when the policy and cover will be cancelled.