LifePlan - Is whole of life more expensive than term cover?
Hands up if you answered ‘Yes’ to this? Don’t worry you’re likely in the majority, but that doesn’t necessarily mean the majority are right.
It’s all a case of positioning
On face value, is a term only premium going to be lower than a whole of life with term premium? Very likely. But with a policy like LifePlan it is unit-linked and can benefit from positive fund growth, meaning that the effective cost of term cover can be greatly reduced… but how?
Here’s an example to demonstrate: Mr and Mrs LifePlan, 33 and 31 respectively wish to take out a policy on a joint life first death basis to cover their mortgage for the next 25 years.
- $45,000 whole of life cover
- $455,000 term life cover for 25 years
- Premiums over 25 years - $200 per month, calculated assuming 3% yearly growth
T
he total premiums paid by year 25 will be $60,000 and the projected surrender value of the policy will be:
| Growth rate | Surrender value | Cost of term cover |
|---|---|---|
| 3% | $39,700 | $2.22 per day |
| 4% | £46,000 | $1.53 per day |
| 5% | $53,300 | $0.73 per day |
The cost of cover is the difference between the premiums paid and surrender value of the policy at the end of year 25, divided by the number of days during the term. If the policy were to achieve growth of 6% each year then the surrender value at the end of year 25 would be $61,700 meaning that the cover effectively cost your client nothing. They could cash-in the policy and get more money back than they paid in – not something that could happen with a plain old term policy.
There are 50+ LifePlan funds to choose from and the range has the same key features as Quantum, which means:
- No mirror funds
- No initial charges
- No bid/offer spreads
- No switching charges
- No custodian fees
Learn everything you need to know about LifePlan by visiting the product page or download the illustration system. Premiums start from USD200 per month and life cover is available up to USD7.5m.