advising on whole of life and endowment insurance a checklist for rfas

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Advising on

Whole of Life and

Endowment Insurance

for RFAs


What is Whole of Life Insurance?

A Whole of Life (WOL) or Endowment Insurance policy is a bundled contract, which

means there is no division of the premium between the insurance cover and

investment portions and administration expenses of the policy.

Whole of Life / Endowment Insurance policies have the following features

• Provide permanent, increasing life cover for one insured person over the long

term, as well as offering a regular system for modest savings and investment

• Provide life insurance to till a minimum age 95 (some premiums stop at 85)

• Annual bonuses increase the amount of life cover over time. Once an annual

bonus is added, it’s guaranteed to remain on the policy

• Actual bonus rates are subject to change and are reviewed annually

• Have more than one owner e.g. a husband and wife may jointly own the policy

• Accumulate a cash value after two years premiums have fallen due and been paid

• Cash values are tax paid and do not need to be considered in annual tax returns

• A WOL policy can be converted to an Endowment to mature earlier


What is Whole of Life Insurance?

A Whole of Life insurance policy provides protection against the financial impacts of

death or terminal illness, with the option to extend to cover against disablement. It can be

used to plan for and cover a range of events,

• Provision to pay off debt e.g. a mortgage or other commitments

• Provision of an estate for dependants e.g. for children’s education

• Insuring a key person or business partner

• Whole of Life insurance caters for clients who want long term, increasing

• Life Cover with a level premium over the term of the policy.

• The policy is foremost a life insurance policy with an in-built savings component


What is Endowment Insurance?

An Endowment insurance policy works in a similar way to a Whole of Life policy. The

main difference is that the policy owner chooses the age the policy matures (ends).

An Endowment policy is also a bundled contract - there is no division of the premium

between the life cover and investment portions of the policy.

Endowment insurance policies can have the following features

• They are foremost a life insurance policy for one life insured. They also provide a

systematic, low-risk method of building a cash value for a future date

• The client chooses the maturity date (Minimum 10 years)

• Providing that the policy remains in-force, a lump sum payment at maturity is assured

• The policy can be jointly owned e.g. by husband and wife. The policy owner can be

separate to the person insured

• A cash value on the policy starts to accumulate after two years

• The cash value is tax paid and does not need to be considered in annual tax returns


Product Features of WOL & END

Level Premiums

Rider benefits are sometimes added

• Temporary Insurance Benefit

• Supplementary Disablement Benefit

• Accidental Death Benefit

• Accidental Death & Disablement Benefit

• Guaranteed Future Insurance

Financial Statements - Financial Markets Authority exemption

Some insurers secured from the Financial Markets Authority (FMA) an exemption from

the requirement to maintain offering documents in respect of these products. The Life

Prospectus have by now expired, will therefore not be renewed, and the Investment

Statements will no longer be maintained. One of the conditions of the exemption is

that they must provide information to policy owners about the options they have

available and the effect of exercising these options.


What Can You Do With These Policies?

Loans – up to 80% of Cash Value – Current interest rates = 7% (AMP 10/14)

Cashing Bonuses

Surrender Policy

Make Paid Up - If your client is unable to afford premiums, a client can elect to reduce

their premium to zero, while still keeping their policy

Convert to term insurance – No underwriting in most cases


Assessing a Conventional Product for

Insurance PlanningAll RFA advisers can provide information on WOL and Endowment Policies. RFA

advisers can give advice on WOL/END policies that were in-force before January

2009, but must have the knowledge and skill to be able to do so.

We recommend providing information so the client can make an informed decision

about the product. You need to be careful when offering opinions or recommendations

about what the client should do with the products.

The first question should be, ‘Does the client want the policy in scope for this

engagement?’ If they say no then ignore it exists and get on with your insurance plan.

If they say yes, you can add a limitation to your advice that you will provide information

and options for the product, but not offer a recommendation or opinion on what action

should be taken. If you leave it in scope and you just say leave it in place you are

deemed to have given advice and are responsible for suitability.


Process for Providing Information and

Options1. Start from today and look forward only.

2. What is the Premium, Sum Insured (Plus Bonuses)?

3. What is the Surrender Value?

4. Are there any Riders?

5. Get 5 year projection of surrender values and sums insured.

6. Get 5 year projection of converting

Then look to answer the client’s questions;

7. For each dollar paid for the next 5 years what is the return in value?

8. How much is the cost of the equivalent term life sum insured?

9. If the current surrender value was put into a term deposit (equivalent security) at

current rates for five years?

10. Present information to client without recommendation.

11. Give client the options of what they can do. (Keep, Surrender, Covert)

12. Document client’s rationale for their decision.


Keep it Simple and Let the Number do

the Talking

Prepared by Barry Read

Independent Development Solutions Limited

Phone: 021 888 054

Email: [email protected]

mailto:[email protected]


Thank You!Visit us at www.chatswood.co.nz

The contents of this presentation are confidential.

advising on whole of life and endowment insurance a checklist for rfas

Economy & Finance