Whole-of-life insurance

Whole-of-life insurance means that you pay monthly premiums for the rest of your life in return for a lump sum to be paid to your beneficiaries when you die.

Unlike a term life insurance policy, the policy covers your entire life, meaning that a payout is guaranteed providing you keep paying your premiums. For this reason, whole-of-life insurance tends to have significantly higher premiums than term life insurance.

Types of whole-of-life insurance

There are two main types of whole-of-life insurance: balanced cover and maximum cover.

Balanced cover

With balanced cover, half of the premiums you pay go towards the cash payout, while the other half is paid into an investment fund. This investment fund is unit-linked, so its performance may fluctuate with the market. If the funds performs poorly, or if management costs should rise, your monthly premiums may be increased to cover the difference.

Maximum cover

With maximum cover, your initial premiums should not increase for the first decade of the policy, after which they will be reviewed. However, they can increase considerably, especially if inflation has risen rapidly within that time, so be prepared for a possible increase.

Balanced cover is the most popular form of whole-of-life insurance, as it offers a chance to increase your money through investment – although this comes with its own set of risks.

If you are taking out life insurance you should also consider other types of policy that may be available to you, such as term life insurance which is generally cheaper than whole-of-life.

Keeping up with your regular payments

If you do miss payments or cancel your plan, you will not usually be reimbursed what you have already paid in. Before you take out a life insurance policy, you should make sure that you would still be able to pay the premiums if your circumstances changed.

For advice on selecting a level of cover and a policy to suit you, speak to a financial adviser.

Last updated: 03 June 2015