What do a professional couple with a young family and a retired tycoon have in common? They can both use a whole of life product for a variety of needs. Jennifer Gilchrist explains.
Traditionally seen as an expensive inheritance tax (IHT) planning tool for high net worth clients, whole of life has been given a radical overhaul and its appeal should be as wide ranging as its versatility.
For many advisers and consumers it is not easy to look beyond term assurance. This is because whole of life cover is often still pigeon-holed as a niche product involving a great deal of investment risk. But, having been given the ultimate makeover, this has all changed.
RDR brought with it an opportunity to revitalise the whole of life market. Sales of unit-linked products were in decline and protection providers recognised there was a need to simplify the product and widen its appeal to all intermediaries and their clients post-RDR.
Open up distribution
A growing number of whole of life products have now stripped out the investment element and have premiums fixed or reviewed during the policyholder's life.
Removing the investment element has provided the opportunity to open up the distribution of whole of life products and now both investment- and insurance-regulated advisers can advise clients on this product.
The new whole of life has been specifically designed to fulfil a range of roles in addition to IHT planning, and it offers a choice between guaranteed and reviewable premium rates.
The reviewable-rate option is different from the old-style unit-linked format with policyholders spared any investment decision making. But premiums will rise at the initial ten-year and subsequent five yearly review stages to reflect the client's increased age and changes in claims assumptions and investment returns, among other things.
Reviewable-rate cover may end up costing more than guaranteed-rate cover but it still offers policyholders the certainty of knowing that, as long as they continue to pay their premiums, they will always have life cover regardless of their state of health.
Term assurance policyholders, on the other hand, who experience failing health could find themselves unable to get affordable new cover once their policy has expired.
Additionally, someone who survives a term assurance policy's cover period can feel they have been paying dead money in the same way that someone who rents a home can feel.
