The main driving force for people, in my experience, when they are thinking about a whole life insurance product is that when compared to level term insurance it isn’t dead money. This is likely the main driving force behind most peoples thinking.
Most people are aware that level term insurance only pays out if the life assured dies during the term of the plan and if they survive the term of the plan it just ceases without value and for this reason they consider it dead money. This is true but you have to understand that term insurance is trying to do a specific job, and that is to provide life insurance at the cheapest cost possible and due to that there is no cash value within the plan.
The opposite is the case with whole of life assurance. Whole life assurance builds up a cash value within the plan and whist it is not a huge amount of money it is enough to give people the impression that their money is not going to waste. But conversely this type of plan is quite a bit more expensive than the comparable term and this is due in part to the fact that it builds up a cash value.
But is this really the best solution to your life insurance requirements and if it is not what is the alternative? Well again I will say what I say to my clients, a whole of life insurance plan is a great product if your need for life insurance is not bound by term, for example a fixed term mortgage, if you need life insurance in perpetuity then whole of life insurance is the only suitable contract.
Whole of life insurance is exactly what it says it is, it runs for all of your life and although it does have a cash value it should never be considered as a savings plan because that is most definitely not what it is. If it’s savings you are thinking of then there are many more efficient plans out there in the market which are completely focussed on saving money and which will produce far more for you than a whole of life insurance plan.
So lets say you do need life insurance but really can’t get your head round spending money in a term plan without getting anything back if you don’t die what can you do? First you need to understand that when you compare any term plan premium versus a whole of life insurance premium you will see quite a difference. So you will be spending quite a bit more on whole of life.
My suggestion would be to calculate the difference between the two plans and instead of buying the whole of life insurance, buy a term plan for the required time you need it, and then with the money saved, which is the difference between the two, buy a monthly investment plan. This could take the form of a savings plan or a maximum investment plan,
If you do this you will be surprised with the returns. You will inevitably get more money back than with your whole of life insurance contract and the plan will generally be written on a ten year basis with the option to renew so will also give you greater flexibility over your savings. But please note you will not have life insurance for the whole of your life so if that is your requirements consider this option carefully. This option is purely for people who do not need whole of life cover but do want some returns in the future.
Independent financial advisers and certified financial planners should always be your first point of contact for all information on your life insurance and saving options. They know the availability of products, what their future performance will be and they will be able to talk you through them all.
