Whole Life Insurance

Whole life insurance is the most basic form of cash value life insurance. Unlike term insurance, which only pays out if you die during the term of the policy, whole of life insurance cover is for the whole of your life. It is guaranteed that the policy will pay out in a lump sum upon your death provided that the whole life insurance policy is still in force. The type of policy taken out determines how much this lump sum is.

There are two types of whole life insurance policy:

1. With profits policy. This will increase the sum assured at regular intervals with bonuses at the end of each year of the policy, as well as at the end of the policy itself.
3. Unit linked policy. This policy will link the value of the sum assured to the value of the investment.

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   The principal difference between term and whole insurance is that with term insurance, premiums paid only go towards a mortality element, as it only pays out if you die within the stated term of the policy. However, with whole of life insurance, the premiums go partly towards a mortality element, with the rest going towards a savings element. Upon death, a fixed sum is paid to the beneficiary along with the balance of the savings account. Over time, a bigger percentage of the fixed premiums tends to go into the savings account. The savings investment (organised by the whole life insurance provider) will be subject to interest rate and inflation risk. Beware that a portion of your premiums will go towards management fees.

   
   

   You are required to pay premiums throughout your life. Typically, when you reach a certain age, premiums stop, but cover continues. Whole of life insurance policies, because they guarantee a payout, tend to be more expensive than term insurance policies.