How Whole Life Insurance Works and How to Make it Cheaper Than it Should Be
Whole of life insurance is very similar to another type of life insurance known as term insurance or term assurance, in that, if the life assured dies it pays out the benefit to their estate. That said, that is were the similarity ends, because whole life insurance runs for the whole of the life assureds life whereas term insurance, by the definition term, only runs for a specified period of time.
Owing to this fact term insurance, especially short term, term insurance can be significantly cheaper. This is due mainly to the fact that it will only run for a specified period and there is a chance that the life assured will not die during this period. However due to the fact that whole of life insurance will run for the whole of the life of the client there is somewhat of a guarantee that it will definitely pay out some day and for that reason it is more expensive.
Another reason whole life insurance can be dearer is the fact that a lot of plans, though not all, do build up an investment element and again this is not without cost. Now at this point it is worth pointing out that whole of life insurance is not a very effective savings plan so if you are ever looking for a good investment whole of life insurance is probably not the right product for you.
The main reason that this type of insurance builds up an investment element is so that it can always meet the ever changing cost of the life assured's risk of dying. When you take out a life insurance contract the life insurance company has to work out the chance of you dying and then cost the plan accordingly. With whole of life contracts this costing exercise can be very difficult as the life company does not know what is going to happen in the distant future, with that in mind if they can build in a buffer zone by way of an investment element it should assist them with the changing costs of covering you well into the future.
Now this is all understood I can get into the important bit of telling you how you can make it cheaper. Again with a lot of whole life contracts there are three levels on which you can quote the plan based on premiums and another three based on benefit. They are essentially the same but owing to the fact that some people want a specific premium level and some people want a specific sum assured they have set the plans up in this way.
I will deal with a premium based plan, first is maximum benefit. Basically the quote is prepared with particular emphasis on producing the maximum sum assured for a given premium. This will result in the most life cover for the lowest premium. However it will only last for 10 years and at that 10 year point the plan will be reviewed and the premium will go up or the sum assured will go down. It should be noted that this type of plan is generally funded at the expense of the investment element of the plan so do not expect any significant fund value if any.
Next is standard cover this will generate a quote that should be maintained throughout the life of the contract. This is the best type of whole of life insurance quote as it will more than likely be the most accurate long term premium as the life insurance company is giving you the quote based on what they think the cost of cover will be for the duration of your life.
Finally there is minimum sum assured, this will without fail be the most expensive way of providing cover as it is aimed predominately at providing an investment element within the plan and pays little contribution towards the life insurance element. If this is the type of plan that you are looking for then you should definitely speak to an independent financial advisor as there are always more effective ways of investing money than doing a whole of life insurance contract in this way.
You should be aware that sum assured based quotes work in a similar way with a maximum cover for minimum premium, standard cover for standard premium and minimum cover for a higher premium. All that said, with any type of life insurance quote whether it is level term insurance or indeed whole of life assurance then it is always advisable to seek independent financial advice to make sure that the plan is the most suitable for your needs especially when this choice will take you many years into the future.
So in summary you can get cheap whole of life insurance quotes by quoting an either maximum cover or minimum premium basis, these quotes will give you the most cover for the least premium but you should always bear in mind that the true cost of providing that cover for the whole of your life will have to be paid some time in the future so you will not be able to keep those premium levels that low forever. That said it is a good way of getting some whole of life insurance cover at what may be an affordable cost.