Whole Life Insurance

A Primer on Whole Life Insurance

Apart from term life insurance, another popular type of insurance in the UK is whole life insurance. As with term insurance, this type of policy provides substantial protection for your family once you pass away.

The Basics

As the name suggests, this type of insurance provides you with protection for the rest of your life provided that the premiums were religiously paid. There is a guaranteed payout it also carries cash value. Depending on which company you purchased the policy from, you will no longer be required to pay monthly premiums once you�ve reached a certain age but the insurance still provides coverage upon your demise.

Because this policy comes with an investment component, it is usually more complex and may require close monitoring on your part. It is vital that you determine an insurance company�s past performance to make sure your investments are taken care of.

Types

There are several types of whole life insurance policies to choose from and these are:

Non-profit Policy. You pay fixed monthly premiums and a cash sum will be paid out upon your death. There is no investment element on this type of insurance.

With-profit Policy. This is a combination coverage and investment insurance where you are guaranteed an assured sum upon death plus cash value from the profits accumulated from the investments made with a portion of your monthly premiums.

Low-cost Cover. This is quite similar to with-profit insurance only you pay lower monthly premiums. Consequently, the profits or bonuses you receive will also be lower.

Universal Cover. A universal type of insurance provides you with an assured sum upon death, profits from your investments plus the opportunity to acquire other types of coverage. You can cash in your policy or use the investment to purchase other types of insurance such as critical illness, personal accident and so on. It is quite like an all-in-one insurance policy.

Pros and Cons

As with all insurance products there are advantages as well as disadvantages to whole life insurance. This type of insurance is favoured because there is a guaranteed payout no matter when the policy holder dies. The cash value is also an attraction as it may potentially grow to a substantial amount. This cash value is also tax-deferred. There is also the option of surrendering the policy in which case, the cash value will be given to you.

A major drawback is the cost of monthly premiums. It is also a more complicated policy compared to term life insurance. GP