This is a follow-up blog on the discussion about \’What is whole life assurance\’. Today we are talking about two different kinds of whole life assurance in this blog, namely whole life limited premium assurance and deferred whole life assurance.
Whole Life Limited Premium Assurance
A whole life limited premium assurance policy can be a with-profit or a non-profit policy. These policies are very suitable for people who know they are going to retire at a specific age. The cover continues throughout the person\’s life, but at policy commencement the assured can choose to cease premium payments upon retirement.
The benefit in the case of all whole life assurance, is the sum assured. This amount is payable at the time of the assured’s death. The premiums are payable for a fixed period or until the time of death, if this occurs before the end of the premium term. At the end of the premium term, the policy remains active as a ‘paid-up’ policy.
We distinguish between a single premium and recurring premium policies. The single premium policy is a special class of whole life limited premium assurance, since the premium payment is restricted to one single amount. Recurring premiums are normally quoted in terms of years, e.g. 10 or 15 or as payable up to a certain age, e.g. 50, 55, 60, 65 and 70 years.
As has been stated previously, premiums are normally quoted according to age next birthday. You may come across the term ‘premiums ceasing at age 65’, which means that the last premium is payable in the year ending prior to the 65th birthday of the life assured. Premiums are always payable in advance, i.e. at the beginning of the applicable period. For annual payments, the final premium will then be payable on the policy anniversary prior to the 65th birthday.
This type of policy is a combination of a pure endowment and a whole life assurance policy. At the end of the pure endowment term, the sum assured is used to purchase the whole life policy. The purpose of deferred whole life assurance is to provide cover, at a more advanced age for people who are not acceptable risks at the time the policy is issued. A deferred whole life assurance product is intended to accomplish two important functions:
- To provide a benefit to the participant at some time in the future, and/or
- To avoid income taxation on that future benefit until it is actually received
Premiums are payable during a specifically selected term. At the end of the term the life assurance commences. Death can either occur during the premium paying term or thereafter. If death occurs during the time when premiums are still payable, the following occurs:
- the contract is terminated
- the sum assured is not payable
- the premiums already paid are not refunded
- If death occurs after the expiry of the specified term, i.e. when all the premiums have been paid, the sum assured is payable.
This type of assurance is issued on both a non-profit and a with-profit basis. In the case of a with-profit policy, the profit sharing will only commence after the expiry of the specified term.