Whole-of-life policies issued on a unit-linked basis are commonly referred to as ‘flexible whole-of-life’ and the flexibility lies in the fact that a variable combination of life cover and investment content are on offer.

With this plan, there is a choice between a minimum guaranteed insurance and a maximum level of cover designed to meet the needs of the person. Subject to certain conditions, changes can be made within the minimum and maximum level of cover required from the initial agreement. The premiums are allocated in unit form and cancelled in order to meet insurance costs on a monthly basis. You will find that levels are reviewed every ten years as standard, but with the exception of more frequent reviews depending on the age of the person(s) to whom the policy relates.

Key Features:

Flexibility is afforded through the method of paying for the life cover by cashing in units at the initial bid price:

• The policyholder pays premiums of an amount that they deem affordable.
• Those premiums are then used to buy units in the opted fund(s) and the units are then allocated to the policy.

The policyholder can select the level of benefits that they wish to have:

• If a higher level of cover is needed, a larger volume of units will be cashed monthly, and a corresponding lower number will remain allocated to the policy. This results in the investment element of the policy (which depends on the number of units involved or included) being lower.
• On the other hand, a low level of cover means fewer units are cancelled and the policy offers a correspondingly higher level of investment.

If the policy’s value is too low to maintain the figure required, there is a choice to reduce the level of cover on offer or possibly increase the premiums. Also, it is possible in some cases that the policy may expire before the death of the policyholder and hold no value. It is possible that some premiums on whole-of-life policies may stop at a previously set age (for example 85 years of age) although the cover may carry on until the person actually passes away.

Other options are frequently available. These include options to take income, a list of benefits (for adjustment of death benefits automatically) and the ability to add another person to the assurance.

Although there can be a high level of investment involved with a whole-of-life assurance, this should not be thought of as a savings scheme, but more as an adaptable protection plan should there be a change of circumstances.

There are usually three main levels of cover on flexible whole-of-life policies offered by most companies, although there is usually an option to choose other levels in-between:

• Maximum cover – you will find that this option is normally set at a level that cover can be maintained for 10 years. After that period, all units would have been used up and increased premiums will need to be paid if cover is to continue.
• Minimum cover – this level of cover is maintained at whatever is the minimum requirement for the policy to remain as a qualifying one, and the number of units attached to the policy builds up to a significant investment element.
• Balanced cover – for a given premium, this level of cover is expected by the company to be able to be maintained throughout the policyholder’s lifetime.

The provider will make an assumption or estimate about the growth rate of unit prices in the future in order to calculate various levels of cover.

Whatever the situation, the initial life cover is guaranteed for a certain period of time, most likely 10 years. Beyond that stage, the company has the right to increase your premiums or conversely reduce your cover to take into account any increase in costs, or to allow for unit prices not rising as quickly as first predicted. The death benefit is then guaranteed until the next review point.

Reviews after this are usually undertaken at five-yearly intervals, or sometimes annually with older policyholders, and further adjustments may be made. The need for this action is the price that individuals or companies may have to pay for the flexibility of the system. The reviews are of benefit to the client(s) because they can lead to the discovery of possible shortfalls at an early juncture, and thus be rectified before a situation could become problematic.