Whole of Life Cover V’s Term Life Cover
th Jun 2018 |
Whole of life cover does what it says on the tin i.e. provides a life insurance pay-out at whatever age the claim occurs, but when it comes to best value, it really pays to understand all your options. After all, even with 2 different Whole of Life Cover quote options now out there, the cheaper alternative Term Life Cover now allows you to insure your life up to age 90.
We appreciate that with all these policy alternatives, life insurance can become that bit confusing. So, to help give you a better understanding we take a look at the difference between Whole of Life Cover and Term Life Cover and outline all your options with worked examples.
Understanding Whole of Life Cover
The important thing to note with this type of cover is that the policy holder cannot outlive the policy while it’s in force. The words ‘Whole of Life’ should be taken literally, as this policy ensures if you pass away you will be assured a pay out. There are two main types of whole of life cover; they are reviewable and guaranteed whole of life cover.
Reviewable Whole of Life Cover
This is an older form of Whole of Life Cover not sold anymore, but you may already have such a policy. The level of cover is reviewed after 10 years and every 5 years thereafter by your insurer until you are 60 years old, then it is reviewed annually. It must be noted that at every review, your insurer may increase your premium if they feel it is necessary.
Guaranteed Whole of Life Cover
Guaranteed whole of life cover ensures that there is no end date to your policy. In contrast to reviewable whole of life, this level of cover does not require any reviews and has a fixed premium from the beginning of your policy. As a result of offering this guaranteed whole of life premium, these policies tend to be very expensive and are best used for inheritance tax purposes.
Whole of Life Convertible Term Life Insurance
You choose an appropriate amount of cover that you wish your family to receive on your death. You pay the monthly premiums for this benefit for the term you have chosen for your main life cover benefit. Your chosen Whole of Life Continuation Benefit amount is paid to your dependants on your death, even if this occurs after the term of cover has ended and you are no longer paying the premiums.
Claire is a 45 year old non-smoker, who is looking for life cover of €200,000 and a Whole of Life Continuation Benefit of €30,000, for a term of 20 years.
Lump Sum on Death Benefit – term 20 years: €200,000 €32.74
Add on Whole of Life Continuation Benefit: €30,000 €40.08
Total monthly premium: €72.82
Total premiums paid in over 20 years €17,477
Even after the term of cover has ended and all the premiums have been paid, the total amount paid out whenever Claire dies is €30,000
Standard Term Life Insurance
The key thing to remember with this type of cover is the word ‘Term’. This refers to the length/years of your policy. If you were to pass away during your term, your policy would pay out. However, it must be noted that if you outlive the term of your policy you will not be paid out. But even with that said, you choose the cover term at policy outset and you can opt for cover to to age 90.
Claire is a 45 year old non-smoker, who is looking for life cover of €150,000 up to age 90.
Lump Sum on Death Benefit – term 20 years: €150,000
Total monthly premium: €72.20
Claire is covered up to her 90th birthday, but assume Claire dies at age 80
Total premiums paid in over 35 years €30,324
The total amount paid out is €150,000
Convertible Term Life Insurance
This type of life insurance is best suited to people on high income with a number of children. A multiple of at least 10 times salary used represent the life cover amount up to retirement age when when pensions kick in and children are independent, after which the conversion option is used to maintain a lower level of life cover into old age.
David is a 45 year old non-smoker, who is looking for life cover of €500,000 up to age 65 with a conversion option.
Lump Sum on Death Benefit – term 20 years: €500,000
Total monthly premium: €69.21
If David dies within the 20 year term a lump of €500,000 is payable to his family, however once he leaves to age 65, he can then use his Conversion Option to start a new policy free from fresh medical evidence, opting for cover to to age 90 as wishes to choose at the time.
We hope you find this information useful, but should you need to speak with a Life Insurance specialist simply call: 01 845 0049
Ken O’Gorman – QFA
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