How whole of life insurance works and how to make it cheaper than it should be.
Whole of life insurance is very similar to another type of life insurance known as term insurance or term assurance, in that, if the life assured dies it pays out the benefit to their estate. That said, that is were the similarity ends, because whole life insurance runs for the whole of the life assureds life whereas term insurance, by the definition term, only runs for a specified period of time.
Because of this fundamental difference, term insurance, and in particular short term insurance, normally works out a whole lot cheaper than its whole of life cousin. This is due to the policy being set within a time frame, so there is a chance that the insured party will outlive the policy and therefore will receive no payout. By contrast, whole of life policies are guaranteed to pay out on death, and as death is inevitable, there is no chance of a non-payout so these policies are more expensive.
Another reason why whole of life policies usually work out dearer is that the vast majority of them accrue an investment element over time, with the added extra price tag. It is important to note at this stage that whole of life policies are not the most recommended of savings plans, so if a good investment is what you are after you would be well advised to consider an alternative.
The element of investment built into this type of plan is there to cover the unforeseen eventualities that may occur for the duration of the policy. Part of the process of creating a life insurance plan is for the life insurance company to assess the practicalities of the client’s state of being and the risk involved and cost the policy accordingly. Now no one knows for sure what the future holds and this is what makes the process of coverage all the more complicated so the insurance companies factor in investment as a way of covering the cost of the many changes that may occur for the duration of the policy, for the benefit of both themselves and the insured.
Now that you know all about what whole of life insurance is, we can now look at how to make it more affordable. With the majority of whole of life policies, there are three levels of premiums which you can work from and three levels of benefits. Although these are both similar in from, some people want a good premium rate and some people prefer better benefits, so there are both types of policies available to you in order to suit these needs.
The maximum benefit premium based plan is designed to give the best sum assured for a given premium. What we get is the highest life cover for the lowest cost. It should be noted however that this is based on a 10 year timescale after which it is reassessed with either the premium increasing or the end yield decreasing. As with all good things the high end yield means that some other part of the policy will be affected, in this case the investment element, so there would be a negligible fund value.
The second type of plan is standard cover, which aims to give a quote that can be sustained for the life of the policy. This is probably the best option when looking for whole of life insurance because of the way it is calculated. What happens is that the insurance company assesses the cost of the policy over the duration of your life and bases the premium on those figures.
Finally there is minimum sum assured, this will without fail be the most expensive way of providing cover as it is aimed predominately at providing an investment element within the plan and pays little contribution towards the life insurance element. If this is the type of plan that you are looking for then you should definitely speak to an independent financial advisor as there are always more effective ways of investing money than doing a whole of life insurance contract in this way.
You should be aware the sum assured based quotes work in a similar way with a maximum cover for minimum premium. Standard cover for standard premium and minimum cover for a higher premium. All that said, with any type of life insurance quote whether it is level term insurance or indeed whole of life assurance then it is always advisable to seek independent financial advice to make sure that the plan is the most suitable for your needs especially when this choice will take you many years into the future.
And so, in order to get the cheapest whole of life insurance policy, you need to look for either the maximum cover or minimum premium plans available to you. Although these plans will give you the best cover for the least possible premium for a while, you must remember that this will not go on forever as you will have to pay the rest at some stage. Nevertheless, it is indeed a good way of getting some whole of life cover for a time at a more affordable price.
