Whole of Life plans are protection plans that promise to pay out an agreed life sum assured on death ie. they are valid for the whole of your life.
Whole of life protection plans have declined in popularity due to the fact that invariably, such plans had a review, after which the premium could rise significantly. If a policyholder could not afford the premium, they could chose a reduced premium with far reduced benefits.
As a Financial Advisor, we welcome the new offering (from Royal Liver) who identified a gap in the market for those who felt that a term protection plan (where cover is for a set period only) is not an ideal solution to a requirement for life cover, as it really depended on death occurring within the particular term of the plan.
Many clients prefer the idea of an open ended life protection plan and of course the main requirement for whole of life plans are for inheritance tax planning.
Whilst we always recommend the convertible option, whereby you can convert to a new term assurance protection plan at the end of the term, without further medical evidence, there are certainly instances where this new whole of life plan might be a good option.
People are now living longer than ever before, and families are having families and buying homes later in life. In 2011 life expectancy at birth was 78.3 years for men and 82.7 years for women. This is up from 73 for men and 78.5 for women in 1996 and is a drastic increase from just 57.4 for men and 57.9 for women in 1926.* Therefore Whole of Life cover is becoming a more attractive option once again.
Royal Liver with their new offering now offer certainty of premium; there are no reviews therefore the premium will not increase. The plan titled “Life Changes” also offers 2 choices after 15 years, policyholders can chose to have a lower amount paid when they die (Protected Cover) or they can choose to take an immediate cash back amount and end the policy (Protected Cashback – up to 70% of premiums). The plan stops at a policyholders 100th birthday, but the cover will continue.
Ordinary whole of life is designed to pay out whenever the life assured dies. If the plan is cancelled, the policyholder gets nothing back. With the above option, for an additional 10%, the client knows that after having had the policy for at least 15 years, they can stop their premium payments and still get valuable benefits.
This is an attractive offering as not only does the plan provide certainty of premium (with no reviews), if the above Life Changes option is chosen, then if circumstances change and they can no longer pay the premium, they can still get valuable benefits (providing premiums have been paid for 15 years).
Traditionally Whole of Life plans are used for inheritance tax planning and this is more important than ever. Inheritance tax planning is not something only the wealthy should be concerned about. Although the tax threshold for parents to children (Group A) was raised in the last budget, it is still down 46% since 2008 (as per Revenue.ie). This coupled with the tax rate of 33% means that a tax bill following the death of a loved one is not something many could face.
If you are interested in whole of life cover as an option and/or concerned about inheritance tax planning, we can assist. Contact us in our offices in Enniscorthy, Co.Wexford on 053 9233640.
*CSO Irish Life Tables
This is an opinion only and does not constitute advice as individual circumstances will determine all financial advise given.