Making up just below 20 per cent of the life insurance market, whole of life (WOL) is traditionally used to support inheritance tax planning or to provide a lump sum to cover funeral costs. But, with its track record of innovation in other areas of the health insurance and protection market, VitalityLife is looking to turn WOL into a viable alternative to term assurance.
In February it launched two new WOL products, Interest Rate Optimiser and Premium Optimiser, each designed to make cover more affordable for younger lives. “WOL is an undervalued product,” says Deepak Jobanputra, deputy chief executive of VitalityLife. “Unlike term assurance, where you pay your premiums and cover is gone at the end of the term, with WOL, as long as you keep up with your premiums, it is guaranteed to pay out.”
Need for WOL
The insurer also believes the changing demographics in the UK mean there is more demand for this open-ended form of life insurance. Alongside increases in life expectancy, the removal of the default retirement age means that more and more of us are working beyond age 65, with the latest figures from the Department for Work and Pensions showing that more than 1.1m over-65s were still in work in July 2014.
These extended working years, coupled with the need for a chunkier deposit to get on the property ladder, also mean that mortgages are being stretched further too. Subsequently, although it was common to ditch borrowers by the time they reached age 65, a growing number of lenders will now consider older people with some of the smaller building societies accepting customers well into their 80s.
With debts potentially extending long beyond age 65, a WOL plan can be a much more suitable product. “We have clients who take out a 30- or 40-year term assurance policy, but a WOL plan would suit their needs much better,” explains Rob May, director and head of broking at John Lamb Insurance Broking. “Unfortunately it is usually the cost that puts them off.”
Guaranteeing a payout means premiums can be as much as three to four times more expensive than opting for a term assurance product. As an example, figures from LifeSearch show how the two types of cover stack up price wise. A 35-year-old non-smoker taking out £150,000 of term assurance to age 90 would pay £21.36 a month with Scottish Widows. Opt for a WOL policy for the same sum assured and the monthly premium would increase more than threefold to £67.59, again with Scottish Widows.
The difference reduces for older ages and for people who smoke, but WOL still remains prohibitively more expensive. For example, a 45-year-old non-smoker taking out the same amount of cover to age 90 would pay £43.24 with Royal London, or £104.46 for the WOL equivalent with Scottish Widows. If they smoke, the equivalent monthly premiums would be £84.06 with Legal & General for term assurance and £149.74 for WOL with Old Mutual.
To bring premiums closer together and make WOL a viable option for younger ages, VitalityLife offers an upfront premium discount of up to 67 per cent, depending on age, where customers take out either the Interest Rate Optimiser or the Premium Optimiser with its healthy living programme. Premiums then increase each year, with the two products passing on these increases in slightly different ways.