Traditionally, the standard for life insurance usually covers two main situations: the care of dependent children and cover any outstanding mortgage or loan payments.
While this type of coverage, known as term life insurance, is sufficient for many people, some prefer the comfort of knowing that loved ones and outstanding debt will be taken care of in any situation.
Known as whole of life insurance, this type of policy can be considerably more costly than a fixed-term life insurance policy. This price increase is due to insurers knowing the policy is going to pay out regardless of the circumstances. If more information is required to determine life insurance needs, please get in touch with us.
Who Should Choose Whole of Life Insurance?
The choice to invest in this type of policy can vary, but the most common reason is to ensure that funeral costs are covered. Another reason could be to provide continuing care for a disabled loved one to ensure that all costs of that care are met without burdening other family members.
Wealthy individuals who plan to leave a significant estate may choose whole of life insurance to help offset the inheritance tax bill, allowing the beneficiaries to receive the estate’s full amount. Ultimately, individual circumstances will best determine if choosing a whole of life insurance policy will be beneficial, always bearing in mind that these policies can be very expensive compared to traditional life insurance.
How Whole of Life Insurance Works
Like many other policies, paying premiums is required to retain coverage. The difference between whole of life insurance and other policies is that one will continue to make payments even into old age. In contrast, other policies only require payment for a fixed amount of time. There are two different kinds of whole of life insurance: balanced and maximum cover.
In balanced cover, also known as standard cover, the holder sets a premium high enough to allow the payment to remain unaffected during the policy’s term. As the policy holder ages, the cost of insurance will not increase, and portions of the payment will be invested on the holder’s behalf. This will assist in providing additional coverage in the future.
Maximum cover is a building premium, as payments may be cheaper at first, as all of the payment is put toward insurance coverage. The downside of maximum cover is that the insurer will review the policy after a set number of years to reevaluate any risks.
Different health conditions and the holder’s age can affect the amount a payment may increase. With this type of cover, the holder is almost guaranteed to see premium payments increase, and if they do not, coverage may decrease.
If you need clarification on what type of coverage may be suitable, please contact Claybrooke to discuss different life insurance options.
Understanding the Fine Print of Life Insurance Policies
When choosing any type of insurance policy, it is always important to read and fully understand the fine print. Reviewing and considering all exclusions and limitations on any given policy can help to determine what coverage may be best and set the expectation for what family members will receive.
With whole of life insurance, many fail to realise that the policy can be reviewed and premium payments may increase to the point of being unaffordable. If the desire to cash in life insurance is likely before the holder passes away, choose a policy that will allow this type of payout and what amount will be received. In some cases, the surrender value is far less than what has been paid into the policy overall.
Keeping Whole of Life Insurance Costs Low
Even though this policy is inevitably more costly than others, the costs of whole of life insurance can be kept at a minimum. The insurer’s main interest is in the health of the holder, regardless if the policy is required to payout at some point.
So, being healthy is the number one way to slow or stop premium payments from rising. Two of the easiest ways to achieve this is by adopting a healthy lifestyle, including not smoking and in keeping drinking habits in the “social” category.
Also, taking out this kind of policy in the younger years of life can help cut costs by avoiding any pre-existing health conditions. Most insurance companies will ask applicants to go through a medical exam before coverage is granted. Because of this, investing in a life insurance policy may be more beneficial before health conditions can develop.
Comparing a number of different policies and providers can be an effective way to ensure sufficient coverage and manageable premium payments. Knowing how different policies work, understanding the fine print, and evaluating what coverage is desired are all ways to help make a decision about choosing whole life insurance.
If more information or unbiased advice is needed, please get in touch with Claybrooke to help choose the best insurance policy for any situation.