Life Insurance

Whole-of-Life policies

A Whole of Life policy is designed to provide a death benefit for the whole of your life and some offer the flexibility to adapt the cover to reflect your changing needs and lifestyle.

Some companies offer premiums that are guaranteed to stay the same for the rest of your lifetime, however most have premiums that can be reviewed in the future.

The policies that have reviewable premiums work on the basis of you paying premiums into your own 'fund', with the insurance company, and each month deductions are made to pay for the cost of the life insurance provided. Any surplus will remain 'invested' in your plan. As you would expect the younger you are the less they need to charge your fund for life insurance so your fund can grow however as you get older they will take more out of your fund than you are putting in and therefore your fund will reduce. You can choose from various funds, and your plan's investment value will depend on the growth of your chosen investment fund and the level of your cover.

Your initial premium level will be based on certain assumptions and the basis of cover you select. For example, the 'Maximum' basis provides the maximum benefit for the lowest initial premium; this would be fixed for the first 10 years only and will then be reviewed regularly. At the reviews it is likely that it will be necessary for the premium to increase or for the cover to decrease significantly.

The 'Standard / Balanced Cover' basis involves a higher level of premium initially but this is designed to maintain the chosen level of benefit indefinitely, provided the fund grows by an average of at least 6% per year. One of the problems with this type of plan, besides the fact that even some financial advisers don't understand how they work, is that if you choose a 'safe' fund, such as a 'cash' fund then it is hardly likely to grow at 6% and therefore your premium will have to increase in the future.

The first review is normally after 10 years, however as you get older they are conducted more frequently, normally annually after a certain age. If the company calculates that you need to increase your premium then they will normally offer you the option to reduce your benefit instead. Unfortunately if you are on a fixed income, as in you are retired, you may not be able to afford an increase in premiums and therefore you may have no option but to reduce the cover Ð and this would be at the very time you are more likely to claim.

You would expect that the policies with guaranteed premiums would tend to be more expensive that the 'balanced' basis reviewable policies, however at present they are cheaper and you will have the peace of mind of knowing that the premium and benefit is set for life.

May I emphasise however that this type of policy is designed to provide you with cover throughout your entire lifetime without the insurance company requiring any further medical evidence in the future.

A comparison of monthly premiums for a male taking out a Whole of Life policy at age 50, or 60.

  Starting a policy at age 50 Starting a policy at age 60
  Non-smoker Smoker Non-smoker Smoker
Guaranteed Premium £15.93 £21.98 £26.44 £37.49
Balanced basis £20.00 £23.26 £26.99 £38.84
Maximum basis £15.00 £15.00 £17.04 £24.89

The above prices are from the most competitive companies that are available to Independent Financial Advisers through The Exchange on the 27th January 2006. The prices with stars next to them are the company's minimum premiums, so you maybe able to get slightly more cover for these premiums. It is important to note that these premiums are based on men in normal health and subject to individual underwriting from the insurance company.

Some companies advertise Whole of Life products with guaranteed acceptance and no medical questions, however the catch is that they tend to be more expensive to start with and they do not pay the whole death benefit in the first two years. Some companies will only pay the premiums paid, or or a proportion of the premiums paid in the first 2 years.

Endsleigh Financial Independent Tailoring is a trading name of Endsleigh Independent Financial Services Limited which is authorised and regulated by the Financial Services Authority. This can be checked on the FSA Register by visiting its web site at www.fsa.gov.uk/register.
Endsleigh Independent Financial Services Limited. Company No: 4132605 registered in England at Shurdington Road, Cheltenham Spa, Gloucestershire GL51 4UE.