Independent Financial Advisers
| Whole of Life Assurance |
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Who needs a Whole of Life Policy? The quite aptly named Whole of Life Assurance does pretty much what the name implies. Provided you maintain the premiums, it provides life cover from the day the policy starts to the day you die. Unlike term assurance plans where you select how long you require the cover for, Whole of Life policies have no fixed term and will eventually pay out. Not surprisingly, Whole of Life policies are typically more expensive that term assurance plans. The reason for this is, unlike term assurance where only a percentage of policies will be claimed on, all Whole of Life policies will eventually result in a claim. For this reason, Whole of Life assurance providers need to make greater financial provisions for claims. Whole of Life policies are typically made up of two elements, a life assurance element and a savings element. The idea of including a savings element within the life policy is to build up a reserve that can be used to fund the ongoing cost of the life cover in later years. This savings element may allow you to stop paying premiums at a certain age or help control and premium increases required to maintain the desired level of cover in later years. When you take any Whole of Life policy with a built in savings element you will usually be offered two options. 1) Maximum cover The initial premiums and the sum insured are guaranteed not to increase for the first 10 years. After this initial period the plan is reviewed and if necessary the premiums may be increased or cover reduced. 2) Balanced cover This cover aims to balance the cost of the life insurance with adequate investment to support the cover in later years. Provided investment returns on the savings element are on track with the plan's estimated growth rate, you should be able to maintain the original level of cover without any premium increases. There is always a risk that investment performance may fall below that required by the plan. In the event of poor investment performance premium increases or a reduction in life cover may be required. It is this dependence on investment returns that makes choosing the right provider essential. A cheap provider with a disappointing track record of investment returns may actually be more expensive in the long run. If this linking to investments does not sound appealing, some providers are now able to offer contracts where the premiums are guaranteed for the life of the policy. Who Needs a Whole of Life Policy? For most people their life cover needs exist for fixed periods of time, i.e. until the mortgage is repaid or the children finish education etc. Whole of Life Policies cover 2 core areas that term assurance policies are just not able to. 1) Inheritance Tax Planning Inheritance Tax is the potential tax payable on your estate. If your estate is worth more that £312,000, your family could pay tax of up to 40% on the excess. So for every £100,000 you own on your death over this threshold, at least £40,000 could be paid to HM Revenue & Customs. In essence, the more you have, the more that goes to the taxman. (Figures quoted are for the 2008/09 tax year.) Whilst we view Whole of Life plans as one of the last courses of action for inheritance planning, it does serve a vital role. Whole of Life policies make provision for the expected inheritance tax bill upfront. Whole of Life policies work because the total costs of the premiums on the Whole of Life policy are typically less than the sum assured (tax bill) the policy is to cover. This is an ideal solution for those clients unable to reduce their estate by other means such as gifting money and placing assets in trust. On the death of the individual or second death for a couple, the proceeds of the policy are made available to the beneficiaries to settle some or all of the inheritance tax liability. 2) Providing for those you care about after your death. For many their financial responsibilities do not end when children leave home or when they retire. If you have disabled or other long term financial dependents that will need continued care after you have gone, Whole of Life policies can help make suitable provision for this care. You may just wish to provide a cash lump sum to cover funeral expenses when the time comes. As Whole of Life policies typically contain an element of investment we strongly advise you seek financial advice. Your adviser will be able to asses your actual needs, locate the most suitable policy and arrange for the appropriate trust documents to be drawn up. If you are considering Life Assurance, please feel free to contact us for Independent Life Assurance Advice. We are able to provide home appointments across the whole of West Sussex - Brighton, Hove, Haywards Heath & Crawley, East Sussex, Surrey - Croydon Sutton, Reigate, Redhill, South London - Wimbledon, Fulham, Chelsea and Hammersmith and Central London. |
