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4 Whole life assurance 4.1 Definition A whole life assurance will provide a benefit on the death of the life insured whenever that might occur. Unlike an endowment assurance, this policy has no fixed term. As with endowment assurances, a benefit may be paid if the policyholder chooses to withdraw from the contract, although the payment may be at the life insurance companys discretion. Similarly, there may be a paidup policy option. 4.2 Use to meet customers needs It is useful as a means of providing for funeral expenses or for meeting any liability to tax, such as inheritance tax or death duties, arising on the death of the life insured. It is a general purpose contract for providing longterm protection to dependants. In the last respect a whole life assurance is particularly useful as a means of protecting some of the expected transfer of wealth that a parent would be aiming to make on their death to their children. Without the contract, the wealth transfer would be likely to be very small if the parent died young. Such contracts can also be a taxefficient way of transferring wealth, at any age, depending on legislation often reducing the liability to death duties or inheritance tax. Withoutprofit contracts offer a guaranteed sum assured on death. On withprofit whole life contracts, the initial benefits may be increased by bonuses. A unitlinked version of the contract is also possible. Under a unitlinked whole life contract, there is considerable flexibility in the level of death cover included, eg the benefit could be the maximum of the unit fund and the sum assured a guaranteed minimum death benefit chosen at outset by the customer. Example A unitlinked, regular premium, whole life contract might have the following features Premiums £20 monthly, payable in advance. Reviewable by the insurer every ten years. Allocation rate of premiums to units 25 for first 18 months, 97 thereafter. Range of unit investment funds to choose from bonds, equities, property. Sum assured policyholder may choose up to a maximum of £140,000. Death benefit the insurer guarantees to pay the bigger of the unit fund and the sum assured, provided that the required premiums are paid. The cost of life cover to be met by cancelling units monthly. Each month the insurer will cancel units to the value of q sub x over 12 times sum assured minus unit value. Annual fund management charge 1 of value of unit fund. Withdrawal is allowed at any time. Surrender value is the value of the unit fund. A key element of the flexibility in the contract illustrated is the choice of level of life cover for a given premium. At the maximum level of life cover there may be little unit fund left by the time of the first premium review after ten years, as the amount cancelled monthly to cover the cost of the death benefit will be high. As the unit fund is small, the death benefit would be the chosen sum assured, as the unit fund would never get larger than this amount. At a low level of life cover the fund would be larger, unit cancellations would be much lower, and so a larger savings element would build up. The policyholder is able to select the desired mix of savings and protection, and possibly able to change this mix as their own needs evolve. 4.3 Existence of a group version There would not seem to be a consumer need for a group version of this contract. Group contracts are usually funded by employers for their employees. It is therefore natural to restrict life cover to the period of employment, rather than offer it on a whole life basis.