Whole of Life Policies

A whole of life policy is another policy which does exactly as it says. It covers you for the whole of your life. When the inevitable happens, providing the policy is still in force, it will pay out a death benefit. Although they can provide a surrender value, they should not be used for investment purposes due to the deductions made for the death benefit.

As payment of the benefit is inevitable Whole of Life policies tend to be more expensive than Term Assurance policies for the same level of cover (it depends on what age you are when you start the plan). Each premium is made up of a mortality element and a savings element. The savings element could build up an investment fund to pay out the benefit on death. The performance of the underlying investment fund for Whole of Life Plans is important, as the cost of future premiums depends on fund performance.

Past performance is no guide to future returns. The value of investments can fall as well as rise.

The premiums and sums insured are guaranteed not to increase for the first ten years. However, they can be more expensive as a claim is assured.

These policies come in various forms:

• Non-profit whole life policies - A level premium payable throughout life. It pays a fixed cash sum at the time of death.
• With profit whole life policies - Same as non-profit policies but the amount paid on death is the sum assured plus whatever profits have been allocated.
• Low cost whole life policies - These have a guaranteed level of cover that the amount payable on death is the greater of the basic sum plus bonuses or the guaranteed death sum assured.

If you are worried about investment risk and increasing premiums, there are Whole of Life policies available which do not rely on fund performance, however, these do not acquire a surrender value.