WHOLE OF LIFE POLICIES - INSURERS HOLD ALL THE CARDS.

Whole of Life insurance policies were very popular in Ireland in the past but their flaws have been brutally exposed in more recent times so if you do hold one it is worth carefully considering your options. A whole of life policy is one whereby the Insurance Company guarantees to insure you for the rest of your life IF AND ONLY IF you continue to pay the premium sought. This is where it gets a bit murkier as typically when the policy was taken out the Insurance Company calculated a premium that would only sustain the policy for a certain number of years and not the whole of your life. Typically they are priced to last 10 years and the Insurer recalculates the price at that point. This re-pricing can become as frequent as every year. The Insurer writes to you to advise that your current premium of X needs to increase to Y (increases can be very significant, even above 100%). Your choice at this point is to accept the increase or to reduce your cover to maintain the current premium or the nuclear option of cancelling the policy. So much for whole of life cover! Understandably people think it is a fixed arrangement with the cost remaining the same throughout (apart from indexation) but in fact all it means is the Insurance Company will maintain your cover if you pay them whatever price the seek. Therefore, as you age and your health becomes riskier they stack the odds in their favour by aggressively re-pricing. Tens of thousands of these policies are still in existence and people don't really know what to do.

So what are the options? The most important variable is your current health as unless you are in reasonable health you may be unable to replace the policy with something better. Another variable worth looking at is whether or not the whole of life policy has a current encashment value. If so and you're healthy not only might you be able to replace it with a more predictable policy you could also pocket the encashment value tax-free. However, If there is little or no encashment value it is telling you that a significant price increase is imminent.

I would advise replacing whole of life policies with convertible term cover as you will then have certainty of cost for the term you select and because it is convertible at expiry you are guaranteed the option to buy up to the same level of cover again for a new term of your choice (max. age 85/90 depending on insurer) without your health being re-assessed. Therefore you can maintain the cover long term to do the job for which it is intended and you are not living in fear of these one sided policy reviews which lack all transparency. Because most life policies sold in Ireland are term policies, pricing is competitive and yes while insurance will become more expensive as you age if at least you can buy at standard health rating that's as good as anyone your age can do.

Wealth ManagementJoe O'Regan