Securing life insurance to ensure your loved ones are looked after and protected is important. It’s not exactly the most pleasant topic, but having a plan for the future so your family is provided for, should anything happen to you, is essential. Getting the right life insurance policy entails considering many different factors, including which kind of policy you want — term life or whole-of-life insurance.
This does not constitute advice and advice should be sought in all instances before acting on it.
Deep Dive: Whole-of-Life Insurance
Let’s focus on whole-of-life insurance first. These kinds of policies are designed to provide a specific amount of coverage for the whole of your life and will pay out upon your death. You might be able to secure critical illness cover alongside your life cover if it’s available from your provider.
Whole-of-life insurance cover pays a sum of money when you die or when you become terminally ill, if that’s included in your policy. As soon as your term begins, your coverage lasts the rest of your life. It’s a great option to provide a legacy for your family after your death or to simply cover affairs and protect your business after you can no longer support it.
These policies are generally more expensive than term life insurance policies because the stipulations dictate that the policy pays out open death, which is guaranteed. Term life policies, on the other hand, only pay out if the policyholder dies within a specified timeframe.
Policy types to choose from
There are a few different kinds of policies to choose from. Some offer a set payout from the beginning, while others are linked to investments so the payout will be dependent on the performance of said investments. Going even further, investment-linked policies could either be unit-linked, linked to funds, or with-profits policies, which offer bonuses.
There are some policies that will dictate that payment of premiums is necessary until you die while others only need to be paid up until a certain age and premiums are waived after that.
Whole-of-life policies with an investment element also have a surrender value. You will lose your cover if you cancel the policy and cash it in. Generally, your premiums are reviewed after ten years and then every five years. If the review shows that you can continue with the same level of protection, it will be guaranteed to the next review date. If the review concludes that you cannot keep the same level of protection you can choose to either increase your payments or if you want to keep your payments the same, reduce your level of protection
If this doesn’t appeal to you, there are whole-of-life policies available without an investment element and with guaranteed or investment-linked premiums from some providers.
Standard vs Maximum Cover
Standard cover balances the level of coverage with sufficient investment to support the policy in later years, maintaining the original premium throughout the policy’s life. However, because it relies on the value of units invested in the underlying fund growing at a certain rate each year, increased charges or poor performance could mean that you’ll need to increase your premium in order to keep up.
For a lower premium, maximum cover offers a high initial level of cover until the first plan review, which normally takes place after you’ve held the policy for a decade. Premiums are low because most of it is used to pay for the actual insurance, with very little used for investment. In order to keep the same level of cover after w review, you might need to increase your premiums as well, depending on how well the cash in the investment reserve has performed.
If you are considering life insurance, you should contact your insurer or professional financial adviser as soon as possible to discuss the options, such as coverage required and the different kinds of insurance you’d like to secure. Get in touch today.