Whole of Life policy

This is an insurance policy that covers you for the entirety of your life. It's insurance protection only (when you pay over your premiums to the life insurer, you're buying cover, you are not building up a nest egg that you will see in your lifetime!).

It is also known as a straight life policy. It differs in concept from term insurance which aims to cover a person's life within a give time frame. e.g. up to the age of 60, or 65 or 70 or whatever time frame you choose.

People often take out whole life policies so that after their death, their beneficiaries will receive a lump sum. This might be used to pay off debts or even an inheritance tax bill.

When you buy a whole of life policy, bear in mind that the regular premiums you're paying are not fixed for the lifetime of the policy. From time to time (every 10 years or more), the life insurer reserves the right to come along and increase the premium you pay! (if you'd like to guard against future rises, you can build a cash reserve by taking out something called 'standard cover'). The alternative to 'standard cover' is 'maximum cover' - this has no built in reserve to protect you against future premium increases.

See Also: Moneyextra Insurance Service

Last Updated: June 2006 © Moneyextra.com

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