Whole Life Insurance

Whole Life Insurance

This page was last updated on 1 November 2020

Whole Life Insurance

In the UK people are living longer and longer, which creates issues when deciding what length of life insurance policy to take out. Luckily, a whole life insurance policy offers cover no matter when you pass away. Below, we tell you all you need to know about this form of insurance.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

What is whole of life insurance?

Whole life insurance is a type of life insurance policy that, unlike term life insurance, provides life insurance cover for the rest of your lifetime.

This plan gives a guarantee to your beneficiaries, as they will receive a cash lump sum payout from the insurer regardless of the age you die at. These policies are also known as life assurance.

How does a whole life policy work?

Once you take out a whole of life insurance policy, you pay premiums to your life insurance provider. Typically, payments are made monthly, but some insurers allow you to make an annual or one-off payment. 

The amount you pay will depend on the details of your policy. Life insurance rates differ between life insurance companies, so it is important to shop around for quotes. 

The money you pay in your monthly premiums will be invested by the provider. Upon death, your loved ones receive a lump sum. This gives them protection, regardless of the future age you die at.

Here is a video explaining how.a whole of life insurance policy works.

How does it differ to term life insurance?

Whole of life policies give you whole life cover. This means that regardless of the age you die at, your loved ones will receive a lump sum death benefit.

Term life insurance, on the other hand, only gives cover for the duration of your life policy. This means that if you die at an age that is not covered by the policy duration, your family might miss out on their funds. 

Whole of life insurance policies, however, have higher premiums. For some, the life insurance cost is worth it, though, because they need to ensure their family and loved ones can access their savings regardless of when they die. 

Is life insurance worth it?

Perhaps, you only need cover for a set period of time, rather than life cover. In this case, a term life policy might be better for you and your loved ones. This is because life plans often have a higher premium, leaving less for your family and other dependents. 

Ultimately, there are pros and cons to both types of service. The fact is, that what is right for one person might not be right for another, regardless of how similar their circumstances seem.

This is why we strongly advise you to schedule an appointment with an expert. They can help explain the options out there, their differences, and the commitments a policy entails. By considering your personal lifestyle, they can give tailored advice and minimise your debts.

Always make sure that any adviser you speak to is authorised and regulated by the financial conduct authority. This will ensure the tips and tools they recommend can be trusted. 

whole of life insurance

When might term life insurance be better?

Some people only need cover for a certain period of time. For example, someone might have dependents who currently rely on their financial support, but in the future will not need it. Term insurance policies are better in these situations because premiums are lower. 

Term insurance policies, therefore, are often better when you have not yet paid off your mortgage, or if your children are not yet grown up. However, if you think your family will need your support regardless of when you die, whole life policies might suit you better.

What are the advantages of whole life insurance?

Essentially, you will be covered by your policy for as long as you live. When it comes to term insurance, some people will outlive their policy and not be covered by it when they die. With whole life insurance you, and your family, are protected regardless of how long you live.

"Whole of life policies give you whole life cover. This means that regardless of the age you die at, your loved ones will receive a lump sum death benefit."

What are the risks of whole of life insurance?

According to data from the Financial Ombudsman, the most common complaint made about whole of life insurance is having premiums reviewed. Even with fixed premium policies, most insurers offer a static premium for the first 10 years, after which it will be reviewed.

As many do not realise their premiums will be reviewed, this can be problematic. Furthermore, you might face significant charges if you want to end your cover early. In some cases, certain causes of death might not be covered by the policy. 



What are the different types of whole life insurance?

There are three main types of whole of life insurance on the market. These are non-profit, with-profit, and unit-linked. Below we explain briefly the differences between these types of insurance. 

Non-profit whole of life insurance

This is the simplest form of insurance. For the rest of your life you pay a fixed premium. When you pass away your provider gives your beneficiaries a fixed lump sum.  

With-profit whole of life insurance

 With this type of insurance your premium is still fixed. However, your provider invests your payments in the stock market for you. The size of the lump-sum your loved ones get when you die depends on the investments’ performance. This is a riskier strategy- you might get a bigger payout, but you could also get a smaller one. 

Unit-linked whole of life insurance

With this type of insurance your premiums are flexible. They vary based on the size of the lump-sum you want to get back. 

Your insurer will invest your premiums, to help you get the payout you want. However, if the investments do not perform as well as expected, your premiums might rise.  

These are the 3 main types of policy out there. Individual providers might offer different policies, or variants of the above, such as joint policies.

We recommend you shop around to see what is right for you. You should always seek professional and personal expert advice before deciding on the type of policy you want. 

How much is whole-of-life insurance?

Policies of life insurance have different expenses and fees based on a range of factors. 

One factor that has a significant impact on the costs of life insurance quotes is the size of the benefits you wish to leave to your family. If they are likely to need a lot of support, you might need a whole of life insurance policy that gives a bigger lump sum. 

The cost of whole of life cover can also be influenced by your medical history and lifestyle factors. Before you agree to a policy of life insurance, compare the different whole life insurance policies. Speak to your children and other dependents too, to figure out the cash sum value they might need to be left on your behalf. 

What affects the premiums?

The premiums depend on your current age, health, whether you smoke, your profession, your medical history, and the amount of cover you want. As a rough guide, if you want a low premium life insurance it might be wise to take out your policy sooner rather than later. 

What is covered by whole life insurance?

Providers typically cover most causes of death, including illnesses, in their contracts . However, you should always check the terms of your quote before signing the contract. 

The reason for this is simple- there are so many death policies out there that no two are the same. Some providers might have exclusions for certain cases, such as deaths caused by certain illnesses or drug abuse, for example. 

Can I get insured if I have poor health?

Some life insurance quotes will not cover certain health conditions, due to their added risk. Other whole of life insurance policies will cover your condition or illness, but with higher premiums. 

If you have poor health, it is even more important that you shop around to find the option that is right for you. With such a range of factors to consider for your life cover, speaking with a member of an expert advice team is crucial. Make sure anyone you speak to is authorised and regulated by the financial conduct authority. 

whole of life cover

Are whole life policies tax-free?

One advantage of whole of life life insurance is that the lump sum is not subject to income tax. However, in the event the cash value exceeds £325,000 your trustees will have to pay inheritance tax (IHT). The charges for this are 40% on all assets over the threshold. 

For some, the inheritance tax bill is a big issue. This is because if they cannot fund the IHT, they might have to take out a loan to pay it and access your estate. However, there are ways around the IHT penalties. 

If you are concerned about the cost of life assurance IHT and your family taking out loans, consider writing your whole of life insurance in trust. This means that the cash value your whole life cover pays out is not considered as part of your estate. 

Are whole of life assurance polices tax-deductable?

Unfortunately, life assurance purchases are not tax-deductable. The reasons behind this stem from the fact that life assurance is not a compulsory investment, but a choice made on an individual basis. 

Can I end my cover if I change my mind?

If you decide to end your whole of life cover before you die, in most cases the fund you have accumulated by paying your premiums will be exchanged for cash. 

However, if you choose to end your life assurance cover early you are likely to experience exit fees. If you think you might want to end your whole of life cover, make an enquiry first about the cost of doing so. 

Are there joint whole of life insurance policies available?

Yes, it is possible to get joint whole life insurance quotes. Premiums for joint whole of life cover are typically lower than paying two separate premiums, so you might make a saving, too. 

The difference with joint whole of life insurance is that the investments only pay out once. The payout is made at the point when the first member dies. This gives the other access to the money accrued, giving them a level of financial security. 

The remaining life whole of life insurance policy holder can use the money how they see fit. They might choose to pay off the mortgage on their home, buy a new car, pay bills such as energy and broadband, or even travel. 

If you are concerned about the limitations of only receiving one payout, you will be pleased to know that some whole of life insurance policies cover the second death in a joint policy. Others will not, though, so be sure to ask the question when shopping the insurance market.

whole life cover

Is there a maximum age for taking out a policy?

There is no set limit to when you can take out whole of life insurance. However, premiums generally rise with age, so it might be in your best interest to take one out sooner rather than later. 

When should I buy my whole of life insurance policy?

Most guides suggest that taking a policy out when you are younger is financially smarter. This is because as you age your health deteriorates and premiums rise. The way that policies for life insurance work also mean that you might get further financial rewards by taking out a policy when you are younger.

This is because many policies offer a savings element. Taking the policy out earlier gives you a longer window to build your savings. For some, the savings can be a source of financing large purchases, such as a deposit for a house, or a new vehicle. Having more in your savings helps you offer better care and support for your beneficiaries once you die. 

How much will the insurance pay?

The amount your loved ones receive will ultimately depend on the specific details and points of your policy. Essentially, it will depend on the premiums that you have paid, and for how long. This is why it’s important to consider the different types of policies out there. 

Remember, the amount paid will only be tax free if the inheritance is valued at under £325,000.

Learn more about health insurance and related topics

Permanent Health Insurance

Permanent health insurance is one type of protection available for your wages. A PHI policy offers financial protection and peace of mind, in the event that you suffer an illness or disability that takes you out of work.

Whole Life Insurance

Whole life insurance is a type of life insurance policy that, unlike term life insurance, provides life insurance cover for the rest of your lifetime. Read more about them here.

Family Income Benefit

Family income benefit is one of the three main types of life insurance policy. It guarantees your loved ones a regular monthly income if you die during the term.  Read more about it here and see if it could help you.

Disability Insurance

Disability policies are a type of income protection insurance. If you are unable to work, your benefits package will pay a monthly benefit amount to replace your lost income.

Group Income protection

Group Income Protection (gip) gives employees that find themselves unable to work due to illness or injury a replacement income. It is salary protection insurance, taken out by companies as an employee benefit.

Endowment Policy

An endowment plan is a type of life insurance policy. As well as acting as a life insurance policy, it is also an investment fund. Read more about them here.

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