Personal Touch Financial

The term whole of life term assurance can be a confusing one for a number of reasons. The name refers to cover that lasts for the whole of the life of the policyholder. Strictly speaking it isn’t “term” assurance as this is for a defined period of time - usually for the lifetime of a mortgage.

For a detailed explanation of term assurance please take a look at our article on The Ins and Outs of Mortgage Protection Life Insurance.

Life assurance is designed to pay out money to dependents in the event of death. Whole term life assurance as well as lasting as long as the policyholder lives is also different to decreasing or level term assurance in that it will always pay out in the end. Whole of Life term assurance cover is for the whole of your life.

As whole of Life term assurance is for the whole of your life it is guaranteed that the policy will pay out upon your death. Term cover only pays out in the event of death during the policy term.

So what are the advantages of this type of insurance over term assurance? Well firstly, as we’ve just mentioned term assurance does not usually pay out at all. It is often simply there as a safeguard in the event of bereavement so that partners and families are covered and can pay off any outstanding mortgage balance or receive a lump sum to protect them.

With whole term life assurance there will always be a pay out. Other advantages of this type of product are that it can be taken out with term assurance to cover an existing debt and could be a means of leaving your family a lump sum payment to help them in the event of your death

Whole of life term assurance is divided into two major categories depending on the payment structure for each type. These are; Balanced cover and Maximum Cover.

So what about the disadvantages? Well there has to a price for the extension of the period of cover which could be many, many years longer for whole of life term assurance. The result of this added benefit is added cost. This cover can be expensive, especially depending on your age and other factors.

Maximum cover is structured in such a way that the initial premiums and the sum assured will not increase in the first decade. After this initial ten year period the plan is reviewed again and the insurers may increase the premiums on the whole of life assurance.

With Balanced Cover the insurer forecasts as far as possible into the future with the aim of maintaining the original premium throughout the life of the insured. In other words the investments made are designed to be sufficient to be able to provide the same cover without additional premiums. A word of caution is necessary here however as poor performance of a balanced cover whole of life term assurance fund could mean that premiums are too low and this could result in increases being necessary to maintain the level of cover.

As with other types of life insurance premiums will vary depending on the age, sex, and other factors such as whether you have smoked in the last year. It is very important to take professional advice when taking out this type of cover as there are a large number of factors that can affect the premiums and the sum assured.

A qualified professional will be able to assess the performance of funds historically based on investment growth and the required growth rate to ensure that these are likely to lead to premiums being kept to a minimum. Other matters that need careful consideration include how the lump sum pay out is made, for example to avoid inheritance tax.

So to summarise, it is important to understand that whole term life assurance provides a guaranteed lump sum payment in the event of death unlike term assurance products which provide cover for a fixed number of years. The cost of the cover is greater and we advise seeking professional advice to ensure the correct policy is selected to meet your needs.

For advice and guidance on any aspect of whole of life term assurance please contact us.