Whole Life Policy:

A whole of life policy is taken out with the intention of covering you for all of your life. There is no set term on the policy, it will continue forever. Sounds good eh, but there are some downsides;

It is expensive. Because you are covering yourself until you die, the cost of cover is more expensive. You could live until you are 110!

The premiums can change. Initially your premium will be guaranteed for 5, 10 or15 years. Then the insurance company will carry out a “review” of the policy. They will assess the current premiums, level of cover etc and they can increase your premium.

Some insurers offer life policies that insure you for the whole of your whole life, or for as long as you want to keep paying premiums. The premium on these policies is much higher than with basic term insurance and can increase at regular intervals.

The most common type of whole of life policy is a unit-linked whole-of-life policy. With this type of policy, the life assurance company invests your premium in a fund. They then manage the fund so that it is expected to grow at a certain rate and to increase in value over time. The fund value is not guaranteed. It may grow by enough to pay for any increase your life insurance premium throughout your life. Or, in some cases, it may fall short of the amount that is needed to pay for your life insurance. In that case, you may have to pay a higher premium to keep the sum assured at the agreed level.

You can decide to pay premiums up to your death or for a specified time, for instance until you are 65. In most cases your insurer will review your premiums and increase them every so often.

Your premiums could increase significantly following this review and you may not be able to afford it. If this happens, you may have to accept a reduction in policy benefits. It’s important to consider this before your decide on this type of policy.

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