As the name suggests, whole-of-life assurance is designed to cover the policyholder for the duration of their lifetime. Provided that premiums are maintained, and the policy remains in force, it will pay out the amount of life cover in the event of the death of the policyholder, whenever that death should occur. The overall benefit of this type of assurance is that it provides peace of mind.

This policy is designed to last for as long as the person is living. A premium is paid monthly and, when the policyholder dies, a lump sum is paid out to the family or beneficiaries of that person. It is a simplistic but valuable scheme, although not used as much as term assurance because whole-of-life assurance is a considerably more expensive form of cover. This is because the insurer knows that they will have to pay out at some point during the policy.

It can be used both in personal and business situations, and for certain taxation reasons/purposes:

• To cover expenses on death of the assured.
• To give a tax-free legacy.
• To protect dependants against loss of financial support in the event of the death of a major income generator/breadwinner.
• To provide funds that can be used for the payment of inheritance tax.

Premiums may be payable throughout life or limited to a fixed term (such as 20 years) or to a specified age (such as 60 or 65).

If you choose a limited premium, the minimum term is usually ten years.

Due to the fact whole-of-life assurance (as opposed to term assurance) will certainly pay out at some point, life companies build up reserves to enable pay-outs when the policyholder dies. This enables insurers to offer surrender values on whole-of-life policies should they be cancelled by the client during their lifetime. These figures are generally quite small in relation to the original sum assured.

When the person takes out the policy, they must ensure they have the means to maintain payment of the premiums both during their working life and after retirement. Failure to keep up with payments will result in cancellation of the policy and there will be no return of any money. The cost is calculated using a series of factors relating to the individual, such as age, lifestyle and health, and what type of cover is required.

In the early years of a policy, the surrender value is often less than the premiums paid. This is to emphasise the fact that whole-of-life policies are protection policies as opposed to an investment scheme, even though they have often been used for investment purposes.