What do a professional couple with a young family and a retired tycoon have in common? They can both use a whole of life product for a variety of needs. Jennifer Gilchrist explains.
But, just as those who take out a mortgage stand to benefit from owning their home, those who pay whole of life premiums can be in a position to leave a significant lump sum to their loved ones on their death. So their family should get something back from the plan eventually.
Downside risk
The downside risk, however, is the possibility of not being able to continue the regular payments. If this happens, the whole of life policyholder’s contract will cease without them or their proposed beneficiaries receiving a penny. But this is where the flexibility of a whole of life plan really can help.
Policyholders can get their children to continue paying the premiums on their behalf if they are no longer able to manage the payments. If the children stand to benefit from the pay-out on the policyholder’s death then they will have a major incentive to do so.
Whole of life products can span more than one generation and fulfil a variety of roles which means advisers have a diversified range of target markets to sell to. So the professional young parents and the retired multi-millionaire can both benefit despite very different protection needs.
Cover can be increased in response to specified life events like marriage or the birth of a child. There is nothing to stop someone initially using a policy to protect their family and, once their family have grown up, switching it to a totally different purpose: such as ensuring that a surviving spouse can buy a widow’s pension or passing money on to children.
This latter role does not have to involve IHT planning. Many people under the IHT threshold may still wish to earmark money for their next of kin, and whole of life cover written in trust provides an ideal way of ring-fencing this for them and ensuring they are paid promptly.
Becoming popular
This approach is becoming more popular because traditionally the bulk of wealth passed down to the next generation has tended to be tied up in the family home.
However, an increasing number of elderly people are now having to sell their homes or unlock capital from them via equity release plans to pay for long-term care costs or simply just to make ends meet.
