Whole Life Assurance

Whole Life Insurance


As the name implies, whole of life assurance policies give you protection for life. Unlike level life assurance that only pays out if you die during the term of the policy, a whole of life assurance policy always pays out eventually. For this reason whole of life assurance can be more expensive than term assurance, although this is not always the case during the initial period of insurance.

The main type of whole of life assurance used these days is unit-linked whole of life, which offers a variable mix between investment content and life cover. The initial premium is usually fixed for 10 years and is generally reviewed at that point to see whether the growth of the investment fund is sufficient to maintain the same premium level. It is possible that the premium may have to increase, or sum assured reduce, at that point.

With this type of policy the 'mix' between life cover and investment is decided at the outset. Each monthly premium is used to buy units in an investment selected fund. Then every month the insurance company calculates the cost of the life assurance for the next month only and deducts this charge by 'cancelling' just enough of the policyholder's accumulated units to pay for the cover.

In this way, the policy grows in value as the number of units held in the policy accumulate and (hopefully) the value of each unit also increases.

The investment growth will depend on fund performance, how much is being deducted to pay for the life cover, and any other optional benefits selected (e.g. critical illness cover).

Initial charges are made to recoup the set-up cost of this type of policy. This is either done by a low allocation to investment units, or special initial units are created