What is whole life assurance?

The premiums are fixed, based on the age of the assured when the policy commences. A whole life policy usually doesn’t increase with age. The life assured usually pays premiums in regular instalments throughout his/her lifetime, except for limited pay policies which may be paid-up in 10 or 20 years or at age 65. The sum assured is then payable on the death of the assured. Whole life insurance belongs to the cash value category of life insurance, which also includes universal life, variable life and endowment policies.

The main purpose of a whole life policy is providing financial protection for dependants and to ensure that the assured’s debts can be paid. The premiums that are paid by with-profits and non-profit policyholders are pooled in the insurance company\’s life fund. The company uses this fund to pay out claims. Whole life policies can be further categorised as:

• with-profit
• with non-profit or
• unit-linked

With-profit policies are insurance contracts that share in the profits of a life insurance company. They provide flexibility to chase a more adventurous investment and aim to achieve long-term capital growth. Non-profit whole life policies provide cover at a relatively low premium rate. They ensure that money is available when the assured has passed away. This money is mostly used for payments of estate duty and any other financial obligations. A negative aspect of this type of assurance is that premiums have to be paid throughout the entire lifespan of the assured. Some people may find it difficult to pay premiums after retirement.

A unit-linked life assurance is a product that offers both insurance and investment under a single integrated policy. This means that a part of the premium paid is used to provide insurance cover to the life assured. The remaining portion of the premium is invested in various equity schemes.