What is a Whole of Life insurance plan? These types of life insurance policies will always pay out whenever the insured person dies. The plans differ from most other forms of life insurance as the cover does not end at a given date. Therefore, the plan guarantees to pay a pre-determined benefit at some at some point in the future. This explains the name relating to the provision of cover for the whole of the policyholder’s life.
Assuming all premiums have been paid and the plan is still in force, it guarantees to pay out the specified benefit regardless of when the insured person dies.
How are premiums calculated?
The insurance company will calculate monthly premiums based on these factors:
- How much cover is needed
- The age of the applicant at outset
- Medical history will be considered
- Occupation, hobbies and pastimes can affect the cost if they create a greater risk of dying
- Whether the applicant is a smoker
Since December 2012, insurers have not been able to differentiate on cost between men and women for life cover. As a result, ‘normal’ premiums for men and women will be the same for men and women of the same age. Increases to the normal premiums will reflect any health or lifestyle issues.
The premiums for the plan are usually fixed for a certain period, typically 10 years . Thereafter, frequent reviews of the level of cover and cost will take place. The insurer may revise the premiums according to the revised age of the policyholder, their own claims experiences, and the running costs of the plans. However, changes in health are not considered. If a rise in premiums at a review is requested, an alternative to paying more might be to reduce the level of cover.
Where is such a plan used?
Because there is a guaranteed payout these plans are useful where there is a need to have a definite benefit paid to someone upon death, whenever this should occur. This may be to leave money to family, other beneficiaries or to cover funeral costs.
In some cases it can be used to provide for the payment of inheritance taxes upon death. This leaves more of the estate for beneficiaries. It is common to see plans put into a Trust arrangement (a legal procedure to transfer the ownership of benefits away from the policyholder and their estate) to ensure the benefits in payment are not themselves subject to inheritance tax.
A version of a whole of life plan is marketed as a ‘no medical life insurance‘ for the over 50’s.
THE PLAN MAY HAVE NO CASH IN VALUE AT ANY TIME. IF PREMIUMS ARE NOT MAINTAINED THEN COVER MAY LAPSE