What is whole of life insurance?

Key takeaways

• Whole of life insurance policies guarantee to pay out a sum of money when you die

• Policies have no end date, though some stop taking premiums once you reach a certain age

• The amount paid out remains the same unless your policy is linked to inflation rates

What is whole of life insurance?

Whole of life insurance, also known as life assurance, is a type of policy that covers you throughout your entire life. As long as you continue to pay your monthly premiums, your family or other chosen loved ones will receive a lump sum payout when you die.

The amount you choose at the beginning of your policy remains the same throughout your lifetime, offering peace of mind and financial stability to your beneficiaries. This money can also be linked to the Consumer Prices Index (CPI) rate of inflation. These policies tend to be more expensive.

Most life insurance policies are term policies rather than whole of life. They only pay out if you die during the policy term. They tend to be more popular, especially among younger people or people without major medical conditions, because they are usually cheaper and tend to have a higher payout.

Is over 50s life insurance a type of whole of life insurance?

Yes, over 50s life insurance is a type of whole of life insurance. It pays out a cash sum whenever you die, as long as the circumstances meet the policy conditions.

Typical exclusions include deaths linked to reckless behaviour, such as illegal drug use, and a waiting period before deaths from illness are covered - usually between 12 and 24 months.

How does whole of life insurance work?

Whole of life insurance guarantees a payout when you die, as long as you keep paying your premiums. For example, you could pay £25 a month for the rest of your life, and when you die your beneficiaries would receive a £10,000 lump sum from your insurer.

Your family can use this money however they wish - for funeral costs, household bills, clearing debts or simply providing some financial support at a difficult time.

Some whole of life policies, such as most over 50s plans, are also guaranteed acceptance policies. This means anyone who meets the age criteria can take one out without medical checks, even if they have pre-existing conditions. However, these policies often have a waiting period (typically 12–24 months) before deaths from illness are covered.

It’s important to know that you may pay more into a whole of life policy than your loved ones eventually receive. For example, a 50-year-old paying £25 a month for a £10,000 payout would pay £12,000 in premiums if they lived to age 90, which is more than the policy would pay out.

What's the difference between whole of life and term life insurance?

While both whole of life and term insurance can offer financial help to your loved ones, they work slightly differently:

What other types of life insurance and protection insurance are there?

You may also come across the following life insurance policies:

• Level term life insurance - Pays out a fixed lump sum if you die during the policy term. The payout stays the same throughout.

• Decreasing life insurance – The payout reduces over time, usually in line with a repayment mortgage. Designed to clear debts that shrink over time.

• Critical illness cover – Pays out a lump sum if you’re diagnosed with a serious illness listed in the policy, such as certain cancers, heart attacks or strokes.

• Income protection insurance – Replaces part of your income if you’re unable to work due to illness or injury, paying monthly until you return to work or the policy ends.

• Death in service insurance – A workplace benefit that pays your family a lump sum (often 2-4 times your salary) if you die while employed by that organisation.

How much does whole of life insurance cost?

The cost of your whole of life assurance policy will depend on the following factors:

• your age

• your health, weight and lifestyle

• whether you smoke

• your occupation

• where you live

• the amount of cover you choose

• the type of policy (standard or inflation-linked)

Does whole of life insurance have an expiry date?

No, whole of life insurance has no expiry date. The policy stays active for life as long as you pay your premiums.

Some over 50s life insurance plans stop premiums at a certain age (often between 90 and 100), but the cover itself continues. Others may pay out automatically once you reach a stated age.

How long does it take for a life insurance payout to be made?

Once a claim is made, life insurance payouts are usually made within 30 to 60 days. The money can be used to cover funeral costs, repay debts or support your family.

Are whole of life insurance payouts taxed?

Life insurance payouts are not subject to income tax or capital gains tax. However, they may be liable for inheritance tax unless the policy is written in trust.

How can I find the best whole of life insurance for me?

There are lots of insurers selling whole of life insurance so it’s important to compare policies so you can find one that is right for you and your loved ones.

The only whole of life insurance MoneySuperMarket currently shows quotes for is over 50s life insurance. We can also help you compare term life insurance and income protection insurance.