Unlike Term Insurance, Whole Life pays out the sum insured whenever you die; there is no time limit. The premiums are higher as there is certainty that a payment will be made. As a result, the younger you are when you start, the lower your premium. You may pay premiums up to a certain age with some policies (known as "paid up" policies) or until your death.
There are 3 main types of Whole Life policies:
With Profits - an annual bonus is added to your policy related to the profits made by your insurance provider. As the provider's profit is not assured, the bonus cannot be guaranteed. However, providers typically allocate bonuses to smooth out fluctuations in profit performance over a period. The return on the investment premium depends on the bonuses allocated over your lifetime. Upon your death, the guaranteed minimum sum assured plus the bonuses allocated over the period, is paid out.
Without Profits - no bonus is allocated to the policy. The guaranteed sum insured is paid out upon your death.
Unit-Linked - some of your premium is invested with the aim of making a good return over your lifetime. Insurance providers offer a range of investment funds into which the premium "units" are invested. You can select the funds but there is no guarantee on performance and their value can fall as well as rise. The return on the investment premium depends on the performance of the investment funds. Upon your death, the guaranteed minimum sum assured together with the value of the investments at that time, is paid out.
Plus Points: Once accepted, there is assurance that it cannot be withdrawn due to any subsequent ill health, so long as all the necessary declarations have been correctly made at the outset and you maintain your premium instalments. Some providers are prepared to make you a loan using the policy as collateral.
Points to Watch: Premiums can be expensive and can vary greatly between providers. Obtain several quotes and compare terms. Review the providers' bonus records (for With Profits policies) and the performance of their investment funds after deductions for charges (for Unit-Linked). If you cancel your policy there is no assurance that you will receive all your funds back, especially in the early years.
For peace of mind, choose providers with consistent bonus and investment track records over time and a sound market reputation.
