What’s the difference between term life insurance and whole of life assurance? With term life insurance, your policy is set to run for a predefined period. During this time, you will pay a monthly premium and if you don’t make a claim on the policy before the end of the term, there is no cash value to be earned. Whole of life assurance is different because part of the premium is invested and a financial return is guaranteed.
Is whole of life assurance more expensive?
Yes, but you will make money back if a claim upon death isn’t made so the costs usually even out over the longer term. Premiums are usually unit-linked and this is relevant to most types of policy. Part of the premium is invested into a fund and this eventually increases the size of the payout. The remainder of your payments are put towards your basic life cover requirements.
How are premiums paid?
Life assurance premiums are made on a monthly basis and for the first ten years, that premium is usually fixed. However, your insurance provider will usually review your premiums after this time and assess the amount of growth in your fund. Depending on how well the policy has matured, your monthly premiums may increase or decrease.
I’ve heard of several different types of life insurance. What’s best for me?
If you purchase with-profit whole of life assurance, an additional premium is paid into a separate fund and this increases the overall value of the policy through a revisionary bonus. A terminal bonus may also be applied upon the death of the policyholder, and this can significantly raise the payout levels. In the early years of a with-profit policy, the surrender value is likely to be very low or non-existent.
What about unit-linked whole of life assurance?
Unit-linked whole of life assurance utilises a pre-agreed level of life cover and investment when a policy is underwritten. The underwriters continue to assess the policy on a monthly basis and calculate the amount of life cover needed for the following month. Cancelled units are subsequently transferred into the investment side of the policy, and this can actually increase the performance-based payout significantly in later life.
I’ve heard of universal whole of life assurance. What is it?
Universal whole of life policies allows units to be cancelled to purchase health insurance, critical illness cover and accident benefits. This type of policy won’t be required if you already have a separate health insurance arrangement.
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