Whole life insurance: when it makes sense

Two different approaches

Most life policies cover a set period, for example the length of a loan or until the children grow up. If nothing happens within that period, the policy ends. This is term insurance, and for many needs it is the right choice.

Whole life insurance works differently. It does not end after 10 or 20 years. As long as premiums are paid as the policy requires, cover lasts for life and the sum insured is paid to your beneficiaries whenever the event happens.

When it can make sense

Whole life insurance is not for everyone. For some families, though, it can make sense when there is a need for long-term protection, for passing something on, or for a sum that does not depend on when the event happens. For example, when:

• The need does not end. A child with a disability who will need support throughout their life.
• You are planning an estate. You want to leave a set amount to children or grandchildren, or to provide cash so property does not have to be sold in a hurry.
• There is a family business. A sum that is certain to be available can help the business continue, or help share things fairly between heirs.
• You want final expenses covered. So the family is not faced with unexpected costs at the hardest moment.

What to look out for

It needs a careful look at cost, purpose and duration, because it is a different approach from simple term cover. For the same sum insured, a whole life premium is usually noticeably higher, because the insurer knows it will pay out at some point.

Some whole life plans combine protection with a savings or investment element. Ask how much of the premium goes to protection, how much to saving, what the charges are and what you would get back if you stopped early. Ending a whole life plan early usually costs money.

A whole life plan only makes sense if you can keep paying for many years. A premium that is comfortable today needs to be comfortable in a difficult year too. As with other life policies, in Cyprus premiums are deductible from taxable income up to 7% of the sum insured, within the overall limit of one fifth of chargeable income.

Why it matters to you

If your need does not end in 10 or 20 years, a different kind of protection may be worth discussing. If the need is temporary, such as a loan or the years until the children are independent, term cover usually gives more protection for the same premium.

Many families need both: a larger term policy for the years of greatest responsibility, and a smaller whole life sum for what must always be there.

What you can do now

• Sort your needs into temporary ones (loan, children) and lasting ones (inheritance, a dependent relative, a business).
• Work out your overall life cover need first with the Life cover quick guide.
• If you are offered a whole life plan, ask for the split between protection, saving and charges in writing.
• Ask what happens if you stop paying after 5, 10 or 15 years.
• For inheritance matters, combine the conversation with your insurance advisor with advice from a lawyer.

For the basics, read Life insurance: an act of care and our life insurance guide.