Life Insurance Guide | Insurance Help Product Information | Regular Premium Unit Linked Whole Life Policies

These plans originally appeared about 25 years ago and have developed substantially since. These are now the most popular whole life policies. Their primary advantage is their flexibility, as they offer a variable mix between investment content and life cover. The policies are regular premium contracts, where the initial level of life cover is set often for the first ten years on the basis of an assumed growth rate in the fund to which the contract is linked. At the end of this period, the policy is reviewed to see how the actual growth rate compares with the assumed growth rate. This determines whether the value of the units allocated at that time will be enough to maintain the sum assured.

The action taken as a result of this review varies from office to office, but usually if the actual growth rate is higher than that assumed, the sum assured can be increased. If it is lower, either the sum assured is reduced or the premium correspondingly increased. Further regular reviews are made, usually every five years, but possibly more frequently once the life assured reaches age 70 or 75. The level of life cover and initial expenses under these plans are higher than on savings plans and, to help pay for this, unit allocation percentages in the early years are very low – sometimes nil for the first two years. Thus, the investment element of the policy takes some time to build up. If the policy is cashed in, the surrender value will be the bid value of the units allocated. If the total unit value overtakes the sum assured, then the higher amount will be payable on a death claim.

The earliest policies had a fixed relationship between the premium and the sum assured. However, most of the newer versions allow the policyholder to choose his own sum assured within certain limits, for any given premium. The policyholder may then have the right to adjust his sum assured up or down (again within certain limits) according to his circumstances. Obviously, the more premium that goes into life cover, the less is invested into units. The attraction of this type of plan is that the level of life cover is extremely flexible – enabling a high degree of protection to be given in the early years and then reducing it to give higher levels of investment later in life, when protection for the family is no longer the main aim.

A ‘maximum cover’ whole life policy provides a high level of life cover and, because it is virtually all risk premium, is akin to term assurance, although without an expiry date and with a substantial chance of an increase in the premium after the first review date.

The cost of the life cover is met by monthly cancellation of units. The amount cancelled is based on the difference between the sum assured and the value of the units, and is calculated with reference to the office’s currently used mortality tables. Enough units are cancelled each month to pay for that month’s life cover. The policyholder can therefore benefit from future improvements in mortality statistics as an office adopts more up-to-date tables. A further advantage is that, as the value of the units builds up, the cost of the life cover can reduce rather than increase – as it would on a conventional policy. Once the value of the units overtakes the sum assured, deductions for life cover will cease.

Most offices allow the policyholder to increase his sum assured regularly, in line with inflation, without medical evidence. This guaranteed insurability provision is valuable because it enables the policyholder to maintain the real value of the cover. However, it is normal for offices to cancel this option if it is not used every time it becomes available. The option may be available every year, every three years or every five years, depending on the office. This option will normally cease at some predefined age, say 65.

Many offices offer additional options such as critical illness cover, permanent total disability cover, income protection or even medical expenses. In these cases, the cost of the cover will be deducted monthly from the units allocated to the policy at that time.