Whole of life insurance

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

How a whole of life policy works?

Whole of life policies are designed to provide a sum of money (death benefit) to your family or estate when you die. In addition to providing a death benefit it has a savings element which over time can generate a cash value. The cash value may be withdrawn under certain conditions, which will be set out in the policy, but may need to be repaid if you want to maintain the original death benefit value for your family or estate.

Types of whole of life insurance

Guaranteed whole of life

You can also get a policy where your premium is fixed, called a ‘guaranteed’ whole of life policy and your benefit is set at an agreed level. You will generally pay more throughout the period of cover for this type of policy than for one where the premium is not fixed.

Your payments for this cover will not change unless you choose a policy that is linked to inflation. If you buy a policy that is linked to inflation, the cost of your payments will increase every year in keeping with rising costs of living. In this case, the lump sum that will be paid when you pass away will also increase.

Unit-linked policies

With this type of policy, the life insurance company invests your premium in a fund. They 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 your life insurance throughout your life. Or, in some cases, it may fall short of the amount 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. This is the main reason why these policies are reviewed regularly, typically after 10 years and every five years from then on. The life insurance company may review the policy yearly after you reach a certain age.

Section 72 policy

A section 72 policy is a type of whole of life cover that is used to pay inheritance tax when you die. Under Irish law, inheritance tax is paid for by the beneficiaries of your estate e.g. your dependents. In general, this policy is suitable if you have dependents that are not in a position to pay the inheritance tax, or if the value of your estate is particularly large. The sum insured under a section 72 policy does not form part of your estate unless it is higher than the tax liability, then the remainder will be subject to inheritance tax.

Types of cover

Single cover: this is cover for one person, this means that when you pass away your insurance company will pay a lump sum to your estate.

Joint life, first death: this covers you and your spouse or partner. Your insurance company will make a lump sum payment on the first death. Only one payment is made and it is paid when the first person passes away.

Joint life, second death: this covers you and your spouse or partner. Your insurance company will make a lump sum payment when the second person covered passes away. Only one payment is made and it is paid when the second person passes away.

Dual cover: This covers you and your spouse or partner. Your insurance company will make a lump sum payment for each death. Once regular payments continue to be made, the policy will continue after the first person passes away. It will end when the second person passes away and the final lump sum is paid.

How long does the policy last?

You can decide to pay premiums up to your death or for a specified time, for instance until you are 65. In the case of unit-linked policies, your insurer will review your premiums and increase them every so often, typically after 10 years and then every five years after that. The life insurance company may review the policy yearly after you reach a certain age.

Following a review, your premium could increase significantly and you may not be able to afford it. If this happens, you may have to accept reduced benefits from the policy. It’s important to consider this before you take out this type of policy.

A section 72 policy is not subject to review and therefore your premium will remain the same. These policies are more expensive than standard whole of life policies.

What can affect the cost of whole of life insurance cover?

The costs will depend on various factors including:

• your age
• your health
• your lifestyle, including whether or not you smoke
• the amount of cover you choose
• the value of the assets you are making inheritance tax provisions for (under a section 72 policy)

It is the responsibility of the insurance company to ask the relevant questions in the application process so that all the information required is received through these answers. The questions must be in plain intelligible language. The consumer is required to answer fully and honestly all the questions set out in the application process. If you do not, your policy may not be valid and you may be unable to make a claim.

Where can I buy whole of life insurance?

Independent financial adviser: an independent financial adviser will look at all the policies on offer and help you to choose one that suits you best. You may have to pay for this advice, so before you agree to enter into a contract with a financial adviser, make sure you get the full cost in writing.

Insurance company: you can buy the policies directly from an insurance company.

Banks: you can buy an insurance policy from your bank. Your bank may be tied to a particular insurance company, therefore they will only advise you on insurance policies from that insurer.

Charges

Whole of life policies have ongoing charges, such as yearly charges for managing the investment fund and sometimes monthly charges for handling your premium. However, the effect of these charges is taken into account when your premium is set. Ask your provider for a full list of charges.

What happens if you stop paying premiums?

If you stop paying premiums into a whole of life policy, it may not lapse immediately, unlike a term life policy. However, the life insurance company may continue to take charges out of your fund until it no longer has any value, when the policy and cover will be cancelled.

Making a Life Insurance Claim

Making a life insurance claim involves some paperwork. There are a number of basic steps you should follow:

• Contact the deceased person’s insurer or broker first: (or their employer if it is an employee benefits package) to find out what paperwork is required.
• Find out what you are entitled to: you may not always know what sort of life insurance policies a spouse or family member had, particularly if they were a member of a group scheme. Review credit card and bank statements and contact lenders and the deceased person’s employer to learn about any additional cover he or she may have had.
• Get your paperwork in order: you will need the policy documents as proof of your right to claim. If you are claiming following the death of the insured person, you will need a copy of the death certificate.