What is Whole Life Insurance and is it still available?
As the name suggests, whole life insurance is designed to last your entire life. It was the most popular type of permanent life insurance before superannuation was made compulsory. Whole life insurance now has now been replaced with the advent of term life insurance policy options. Whole of life insurance.
How does Whole Life Insurance work?
Before superannuation was made compulsory, most workers used whole life insurance as a means of providing funds for when they retired, by surrendering their policies so they could access the policy’s cash value. A portion of the premium paid for whole life assurance having been put aside for investment purposes and another to fund the insurance cover.
How much does Whole Life Insurance cost in Australia?
Whole life insurance was considerably more expensive to low cost term insurance, due to the cash value component. However, it is important to note that while the guaranteed earnings you can get with whole life insurance is attractive, often the interest you receive from the investment portion does not pay any more than when you have savings account with a bank.
However, some might still consider whole life to be a worthy investment in Australia, this is because whole life was seen as forced savings and by having a cash value component. Policyholders had the assurance that the life insurance company would have to pay out on whole life insurance one way or another, either in event the life insured’s death or when the policy was surrendered.
What are the advantages and disadvantages of Whole Life Insurance
Whole of Life policies presented a number of benefits and drawbacks to owners of this type of cover. Let’s review these;
It is important to note that although whole life insurance policies are generally regarded as “whole of life,” they do in fact expire when you turn 100 years old. This means, if you were to live to 100 or more, the policy would mature and the face value would then become payable.
What's the difference between whole life and term life insurance?
Similar to whole life insurance, term life cover provides a lump sum death benefit in the event that the policyholder passes away while the policy is still active. There are some notable differences between whole life and term life insurance. These include:
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Financial advisers will often recommend term life insurance for insurance purposes and suggest that you find other ways to invest the remainder of your money, but this depends on how much money you have available for investment purposes and whether you have the capital available to take advantage of the most profitable investments.
How long can term life insurance be taken out for?
You have the power to select a period of cover most suitable for your situation. Applicants usually select terms of 5, 10, 15, 20 and 30 years. Another benefit of term life insurance is that you will continued to be insured in the future as long as you meet the premium payments when due, regardless of any changes to your health, occupation or pastimes.
How are premiums paid for?
You are also in control of choosing the premium structure that best suits your financial situation:
Will Whole Life Insurance ever return to the Australian insurance industry?
An important question was raised in a recent MDRT gathering for financial professionals in 2013 on whether the time has come for whole life product to make its comeback to the Australian market. Jeffrey Ranz, a US based adviser, shared his opinion that the major distinction between term life and whole life policies comes down to ‘when’ and ‘if.’ The question with term life insurance is ‘if’ the policy will provide a payout, while whole life is a matter of ‘when’ the policy will be paid. Ranz concluded that whole life insurance is the only cover that can guarantee this 100% of the time, but not so much with term life insurance.
The Australian market may one day see the revival of whole life insurance when the industry sees the merits of bundled life insurance and savings/investment plan.
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