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Q: I seem to recall that you had an article or question some time back about Whole of Life policies but I forget what you advised at that time. My wife and I are in our mid-fifties and have just received correspondence about the life insurance to say that the policy has been reviewed. As a result, if we want to hold on to the existing amount of life cover then the monthly premium will almost double. The alternative option is that if we choose to pay the same monthly premium that the amount of our life cover will be reduced by 50%. We wish to have about the same level of life cover in place for another 10-15 years, provided we can afford the premiums. What would you advise?
A: First, I’d need to get the full details of your existing Whole of Life policy to find out your existing benefits before I’d be in a position to advise you and recommend suitable alternatives.
Premiums on Whole of Life policies tend to be modest if you take them out when you are relatively young, in your twenties or thirties. Under the terms and conditions of most Whole of Life policies the premium is reviewable, usually when you reach your fifties. The policy may be reviewable annually or, perhaps every five years. As a result of a review, this usually results in a significant increase in your monthly premiums to a point where the policy may no longer affordable for you.
In simple terms, as you get older, the risk of you dying increases, and therefore, the risk for the life insurance provider having to pay a claim increases. This means that they have to charge you more to insure the risk. However most Whole of Life policies do have a (modest) surrender or encashment value which is payable to you if you decide to cancel your whole of life policy.
The good news is that, provided you are both in good health, that you should be able to get similar amount of level term life cover for 10 or 15 years at an affordable price. At the very least the premiums on a new level term life policy would be guaranteed and would not be subject to ongoing review. In addition I’d recommend having a conversion option on a new level term policy. The additional monthly premium for this should be modest. The benefit of the conversion option is that you can convert to a new life policy before the existing policy matures, without having to provide additional medical evidence. Furthermore, if you receive encashment proceeds from cancelling your whole of life policy, then these could be used to pay some of the premiums on a new life policy.
Level Term Life Cover
A level term life cover policy is a life policy where the amount of life cover remains the same for the full term of the policy. The monthly premiums are fixed and guaranteed.
I’d recommend that you arrange to meet with me to review this and any other existing life policies which you currently have.
For advice on life cover and other protection issues please consult Belinda McCauley at Money Plus, your local independent financial broker. Belinda and her colleagues at Money Plus, Bridge St, Boyle would be delighted to help you. Belinda can be contacted at 071-9194000/086-7847827 or by email: [email protected].