How Does Whole of Life Assurance Work?

When looking for Life Assurance one option you may find offered is a Whole of Life policy. This policy is distinctly different from a stand fixed term Life Insurance policy, and understanding how it works is important when choosing the right policy for you or your loved ones.

Whole of Life Assurance- the basics

A Whole of Life Assurance policy is one where the term is until the death of the life assured. This effectively means that the term is not a specific length of time.

Many Whole of Life policies combine providing life cover with an investment element so that in later years the cost of providing the life cover remains fairly stable as the underlying value of the policy increases. These Whole of Life policies usually include a provision to review the policy on a regular basis.

Other Whole of Life policies operate in the same way as a normal Term Assurance plan in that the policy never has a surrender value. Most of the policies sold in the over 50s market are Whole of Life plans that do not contain an investment element.

How is the cost of a whole of life policy calculated?

For the policies that contain an element of investment, the actual cost of a policy will depend on how the level of cover provided by the policy is calculated. The premium paid can be set at any level, however when calculating the necessary premiums, either Maximum or Standard cover is commonly used.

Maximum cover

This level of cover is the maximum available for the premium paid. The amount of the premium invested is very low, and a Whole of Life policy set up on this basis of cover is unlikely to achieve much in the way of a surrender value.

Standard cover

The level of cover is based on a number of assumptions that include the cost of providing cover and the expected returns available on the investment element. Often the level of investment return will differ depending on the fund that is chosen. The value of the investment is often targeted to be at the level of cover provided at a fixed age (around 85).

Policy reviews

Whole of Life policies with an investment element include a Policy review as part of the terms and conditions. A policy review will be carried out at fixed intervals (usually every 5 or 10 years). The review looks at the level of cover being provided, the investment value and the costs of providing the cover in the future.

A policy holder should be notified of the results of a policy review. For those policies that have been set up on a Standard cover basis, there should be little change to the policy assuming investment returns have met those used when calculating the original premium.

Policies set up on a Maximum cover basis will usually require a significant increase in premium to be able to maintain the cover.

Often the policy review will offer an alternative of reducing the level of cover. Many Life Assurance companies will allow for both an increase in premium and a reduction in the level life cover.


This article is for guidance only and must not be construed as advice. The contents of this article are aimed at the UK market, although many countries will have similar policies available. If you need advice you should refer to a Financial Adviser.

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