As the name suggests, a whole-of-life insurance policy continues in force until you die, at which point the insured amount is paid out. That of course is on the important assumption that you continue to pay the policy premium up to the date of death. And therein lies the major problem for a growing number of people who bought this type of policy, especially ones bought more than ten years ago.
Generally these policies are a combination of a savings plan and life cover. The savings part of the premium is invested in the early years with these funds then used to supplement the more expensive premiums in later years.
These type of policies can make sense when you are younger – you get cheap premiums and the potential for growth in the savings element. However the majority of these policies are reviewable. This means that the insurer reviews the premium, generally after an initial ten year period, then every five years thereafter, and after age 70 some include an annual review. As you become a higher risk to the insurer with age these reviews invariably result in a premium increase. In effect a review simply means higher premiums.
Invariably at some stage the policy becomes unaffordable and you cancel. The insurer gets to keep all your premiums but never pays out. You receive no benefit.
According to Finance Minister Michael Noonan the Financial Ombudsman has received over 800 complaints about whole of life policies since 2010, although it would appear that very few of these have been upheld.
If you have a whole of life policy you need to get it reviewed, ideally by an independent financial advisor, to understand exactly what type of policy you have and what it is likely to cost you in the future.
It may be advisable, depending on your circumstances, to take the cash value (if any) and put a term life insurance policy or a guaranteed whole of life policy in place. Of course you need to make sure you can get replacement cover at an affordable price before cancelling your current policy, and you should always seek professional advice before amending your cover.
We provide expert advice on life insurance so if you would like to talk to someone about your or a family members situation, please don’t hesitate to call us on 0749321420 or alternatively send us your query via the contact page. Our service is totally confidential and there is no cost or obligation for our initial meeting.