How can you protect yourself?

This type of insurance, as the saying goes, does what it says on the tin - it provides life insurance cover for the whole of your life and is guaranteed to pay out upon your death. It is one potential way of mitigating Inheritance Tax as it is often used to provide for your dependents, or to cover your IHT bill, when you die.

The advantage of Whole of Life insurance is that you can leave a lump sum to your loved ones and combine it with term insurance if you want to cover any specific debts. The downside to Whole of Life insurance is that it tends to be more expensive than Term Insurance.

Premiums will depend on the sum to be insured, your age, your sex and whether you smoke or not (a non-smoker is usually defined as someone who has not smoked for at least 12 months). In addition, premiums for women are generally lower as on average they tend to live longer.

There are two types of cover to choose from:

• Maximum Cover where the initial premiums and the sum insured are guaranteed not to increase for the first 10 years. After this period the plan is reviewed and, if necessary, the premiums may be increased.
• Balanced Cover that aims to balance the level of life insurance with adequate investment to support the cover in later years and maintain the original premium throughout life. This relies on the value of units invested in the underlying fund growing at a certain level each year. Increased charges or poor performance of the fund could result in the premiums being inadequate and may have to be increased to maintain the same level of cover.

What options are available?

There are three types of Whole of Life policy available and your SFS adviser can help guide you through the options. They are:

Unit-Linked: The premiums you pay buy units of an investment fund and this fund is then used to pay for your life insurance. The premiums will be reviewed throughout the life of the policy and may change.  If investment returns are good, you may benefit through lower premiums - likewise, if the investment returns are poor your premiums may increase when the policy is reviewed.

With Profits: This is similar to a Unit-Linked policy, but is invested in a With Profit fund and tend to be less risky than a unit-linked fund.

Non Profit: The premiums do not depend on investment returns and this type tends to provide more certainty in what your premiums will be.

Additional options and areas for consideration include:

Life Fund Historic Performance: This option will check the historic performance of the insurance company’s life funds. Poor previous performance could indicate a greater likelihood that future performance may also be poor, meaning monthly premiums may have to increase in order to maintain the same levels of life cover.

Investment Growth Rate Required: For balanced cover, check the investment growth rate used to calculate your premiums. The lower this rate the better as this rate defines the minimum growth rate required by the investment in order to maintain premiums at the same level.

Critical Illness: This is where a lump sum is paid in the event of diagnosis of certain critical illnesses. You can save money by combining term insurance with critical illness cover. However, depending on the policy type, this may provide a single payout should death follow a critical illness diagnosis, rather than two payouts if cover is obtained separately.

Waiver of Premium: If illness prevents you from working your monthly premiums are paid on your behalf for after a set deferment period. Check the Key Facts documents for each quotation produced.

The terms and conditions of Whole of Life Insurance policies vary, so make sure you understand the scope of the cover being offered before committing yourself. Your SFS adviser will be available to discuss your individual needs to help you make the right decision. Simply call us on 0800 137 832.

 

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To find out more about any of
the services we’ve mentioned
simply:

• Contact your SFS Financial Adviser
• Call a member of our Client
  Help Line on 0800 137 832
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