Whole Life Insurance
Whole of life insurance is a life insurance policy that is guaranteed to pay out on the death of the policyholder. As the title suggests, whole life insurance products cover the holder for the entirety of their lives, paying a lump sum when they die, regardless of what stage of their life death occurs. Whole of life insurance differs from mainstream term insurance because the latter will only pay out if the policyholder dies within the designated period of coverage.
Understandably, whole of life insurance is more expensive than term insurance because of the guaranteed pay out. However, it offers customers the reassurance of knowing that they are comprehensively covered, while also ensuring that funds will be available for loved ones upon their death.
Customers taking out whole of life insurance policies can opt to take an initial guaranteed set premium price followed by a variable rate (known as maximum cover) or an immediate variable premium rate (known as balanced cover). This situation differs from term policies, in which customers can fix their premium payments for the life of the policy, because of the guaranteed pay out nature of whole of life insurance.
To ensure they have sufficient money reserves to pay out on whole life insurance policies, insurance companies invest premiums in life funds in order to grow their fund pots. However, the success of investments can vary, so companies will not offer full term fixed premium guarantees. However, in order to offer a portion of consistency, whole of life insurance providers offer 'maximum' terms packages, in which customers' premiums are fixed for a set period at the start of the policy. Often this can be up to 10 years.
The 'balanced' product exposes the policyholder to the variable factors that could affect their premiums from the start. However, this option is potentially cheaper, particularly in the early years of the whole life policy, and, like over 50's life insurance policies, many whole of life insurance products offer a cut-off age at which time the need to pay in premiums will stop but coverage will continue until death. The cut-off age for this provision is normally in the 80's.
Whole of life insurance products are flexible and can be bundled with term insurance and critical illness cover. Typically, premium rates are determined based on customers' age, sex and whether they smoke. Of course the sum to be insured also affects the premium rate.
Due to the investment nature of whole of life insurance, those considering such policies should review the investment history of providers. A company with a strong investment history is less likely to hike up premiums, while a poorer performing insurance provider is more likely to have to increase premiums to match financial responsibilities.
Furthermore, customers should also review the investment growth rate each individual insurer requires to maintain premium status quo. The healthier the insurer's standing, the lower the growth rate needed to maintain the status quo. Whole of life insurance seekers should be looking for providers with the lowest investment growth rate.
Finally, whole of life insurance customers should consider setting their policies up in trust. Doing this will help to avoid losing part of the lump sum pay out to inheritance tax, while also ensuring a quicker conclusion to the claim process.