Whole of life policies - life insurance - by independent financial adviser John Bramwell

Whole of Life Policies

What are whole of life policies?

These policies provide life cover for the whole lifetime of the policyholder, and will pay out a lump sum on death, whenever that occurs. Although they provide a substantial level of life cover, they also have an element of investment. The exact balance between life cover and investment will depend on the policy.

Single premium policies are available, but most policyholders pay a fixed regular premium.

There are three main types of whole of life contract:

Non-profit - guarantees to pay a fixed sum on the death of the life assured. This policy will accumulate a surrender value, but this is likely to be relatively low.

With-profit - guarantees to pay a minimum lump sum on the death of the life assured, but this amount will be increased annually by the addition of annual (or 'reversionary') bonuses. See with-profits investments.

These policies also accumulate a surrender value that will be higher than that for a non-profit contract. The surrender value is unlikely to be substantial in the early years of the policy. Premiums for with-profit policies are significantly higher than those for non-profit policies.

Flexible (also known as unit-linked or universal) - the policyholder is allowed freedom to choose between a minimum level of guaranteed insurance and a maximum level. The cover selected at the outset can be changed within the upper and lower limits at any time.

These policies allocate the premiums to 'purchase' units in an investment fund. The life cover is paid for by selling just enough of the accumulated units.

The value of the policy depends on the investment growth of the units and the deductions for life cover, and any other optional benefits selected.

These flexible policies allow the level of cover to be altered from time to time, and also give a number of other options that help you to tailor the policy to your changing needs throughout life.